Equity based Gold Funds are funds which are focused on investing in stocks of gold mining companies. Mutual Funds invest the money they have collected from the public to invest in various stocks depending upon the investment objective of that fund.
The basic essence of mutual fund is investing across a variety of stocks to minimise the risks associated with the market by way of diversification. But Equity based Gold Funds are sectoral funds which means that the fund invests in stocks related to a particular sector.
Gold - An Appreciating Asset
Traditionally it has been observed that gold is an appreciating asset but investing in the metal has associated risks related to safety and storage. Gold funds enables the investors the option to invest without those inherent risks. Also it is a known fact that as the price of gold increases, the profit earned by gold mining companies also increase. Investing directly in the stocks do expose investors to company related risks, but the potential to yield higher returns is more with these stocks rather than gold ETFs.
Investing in Equity based Gold Funds are riskier but have potential to generate higher returns in the long term as in the long run, they are able to even out the eventual setbacks and a good bet to counter financial instability.
