Gold Mutual Funds invest in gold producing entities or into Gold bullion. The value of these funds have close relationship with the the spot price of gold itself. This is because the amount invested are in bullion or in the shares and debt funds of gold miners and manufacturers.
Benefits of Gold Mutual fund
- Suitable for those investors investing across countries but who wish to secure themselves from geographical as well as political instability
- Gold is best suited in the situation where currency is devaluing or depreciating
- Investor is relived from taking physical delivery of gold unlike commodities market
- Value of Gold mutual fund generally approximates to the Gold spot price
- Whenever there is rise in gold prices , gold companies tend to follow higher profitability trends , thereby providing long term appreciation in the value of mutual fund
- Investors can benefit from global demand for gold
- In volatile stock markets , Gold mutual funds are best option
- Gold Mutual funds are professionally managed hence the investor can benefit from their expertise
- Trading in Gold mutual fund can be done on any days when the stock market is open without having risk of actually storing gold physically.
Limitations or disadvantages of Gold mutual fund
- It won’t be eligible for tax benefit as for equity oriented mutual funds
- As most of gold mines are outside India , any currency rate fluctuations will affect real return
Factors to be considered for investing
- Back end or front end service charges of these Funds
- Availability for new investors
- Expense ratio including leverage ratio
- Track record or past performance
- Experience of Asset manager
- Allowability of speculation or hedging while investing by mutual fund company
