Deepshikha | Mar 15, 2022 |
Mechanism and Benefits of Gold Funds
Open-ended funds that invest in units of a Gold Exchange Traded Fund are known as gold funds (ETF). The fundamental goal of gold funds is to generate wealth by utilizing gold’s commodity potential. It is appropriate for those who want to gain exposure to gold. Investing in gold using gold ETFs is more convenient than holding the metal prudently. You may get a comparable gain with real gold holdings combined with competent fund management.
Each gold fund would have a fund manager who would make investment decisions based on the fund’s objectives. A gold fund’s returns may be very similar to those of a gold ETF. Furthermore, the fund’s Net Asset Value (NAV) may be influenced by the market’s overall gold price movement.
Many investors have their sights set on the yellow metal — Gold — as a haven investment since the epidemic tightened its grip on the world and financial markets got volatile. According to the World Gold Council, India’s gold demand increased by 37% to 140 tonnes in January-March 2021. Many bullion experts, however, recommend Gold Funds as a superior option if you wish to invest in this precious metal. Simply described, a Gold Fund is an open-ended investment product that invests in Gold ETFs, which are passive investment instruments that invest in gold and monitor its domestic price. Their NAV is based on the performance of the underlying 99.5% pure physical gold price.
Many investors consider Gold Funds to be a hedge against financial losses. These Indian Mutual Funds might also assist you in diversifying your investment portfolio. However, when investing in these funds, not every investor is aware of the underlying variables.
Let’s take a look at some of the advantages of gold fund investment.
The performance of Gold as an asset class has historically been inversely proportionate to that of Equity. As a result, diversifying your investments between equity and gold creates a cushion against equity investing volatility. When the stock market falls, gold demand rises. When gold prices fall, equities markets rise naturally. As a result, these two asset groups in your portfolio contribute to portfolio diversity.
When we acquire actual gold in the shape of a piece of jewelry, there is always the possibility of ‘making charges,’ which are an additional transactional fee. Even if you later decide to sell the jewelry, the same sum will be removed from the amount you are paid. Investing in Gold Funds, on the other hand, carries no such ‘making charge’ because the fund invests in 99.5% pure gold ETF units. AMCs do levy an expense ratio on Gold Funds, so keep that in mind.
Physical gold must often be stored in such a way that it is not vulnerable to robbery or burglary. There’s also the possibility of actual gold being misplaced or lost. To combat this, many gold buyers end up purchasing security lockers, which can be an additional expenditure. Gold Funds eliminate all of these headaches by giving you access to Gold as an asset while also removing the need for you to think about how to keep it.
Gold Funds can be invested in defined quantities at regular times in a methodical manner. This fixed amount does not have to be large; it might be as little as $100, and you can invest weekly, monthly, annually, or semi-annually, depending on your preferences.
Many novice investors believe that investing in Gold Funds is the same as purchasing physical gold. The truth is that there are a number of distinctions between the two. Gold Funds, often known as paper gold, are a convenient way to invest in gold without having to deal with the hassles of purchasing, holding, and reselling physical gold. Furthermore, the money invested in Gold Funds is used to purchase gold of the greatest purity – 99.5% – but it is difficult to determine the purity of physical gold purchased in the form of jewelry because it comes in a variety of purity levels. Knowing these distinctions might help you set realistic expectations for your Gold Fund investments.
If you want to invest in gold, you can follow the Gold Funds way and create a SIP. Keep it as a modest component of your overall investment portfolio depending on your risk appetite and asset allocation decision, and then concentrate on the potential for stability.
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