Why Gold Mutual Funds are one of the most convenient ways to invest & accumulate Gold as an asset class?

Indian is the world’s largest holder of gold. Households in India has always believed in stocking up this precious metal as a symbol of wealth or as a safe haven during a crisis. Indians love to shop gold for special occasions. It is believed that buying gold on auspicious occasions like ‘Akshaya Tritiya’ symbolizes ‘endless wealth’. As Akshaya Tritiya is nearing this month, buying gold mutual funds could be one of the smart ways of accumulating and investing in gold amid lockdown.

What are gold mutual funds?

Gold mutual funds are the open-ended mutual funds investing in a unit of a gold ETF (Exchange Traded Fund) that predominantly invests in gold producing companies and gold bullions. Like any other mutual funds, money pooled from all the investors with a similar objective is invested in a portfolio of shares. The performance of Gold Mutual Funds investments is dependent on the price movement of the gold. Basically, gold mutual funds allow you to invest in gold with professional fund management without having to take the physical delivery of the metal. 

Reasons to invest in gold via gold mutual funds

Here are a few reasons that make gold mutual funds the most convenient way to invest and accumulate gold -

• Flexibility: Physical gold purchases work out a price and cost wise when you are buying in lump sum quantity. But, Gold Mutual Funds investments provide you with the flexibility to invest in smaller and systematic ways. You can invest in gold mutual funds via SIP (systematic investment plan) route with an amount as small as INR 1,000 every month. Investment can be initiated online.
• Purity and safety: Gold Mutual Funds investments are backed by the physical gold of the highest purity. Gold mutual funds are priced by way of NAV (Net Asset Value), which is disclosed every day after trading hours. And, these funds are managed by well-regulated mutual fund entities which ensures safety.
• Cost efficiency: Gold mutual funds are the cost efficient options. Unlike physical gold, gold mutual fund involves no making charges and storage cost. When you compare them with gold ETFs (exchange traded funds), gold mutual funds involve no transaction cost as well. However, these funds may involve nominal exit loads and fund management charges. Relatively, Gold Mutual Funds investments are more price efficient options.
• Liquidity: Gold mutual funds being the open ended schemes, can be redeemed anytime to meet the liquidity requirements. However, the net asset value for the day needs to be considered.
• Performance: Unlike equities, gold as an asset may not give exceptionally high returns. However, during the economic uncertainties, gold can perform relatively well in comparison to other asset classes with its lower correlation. Gold is considered a safe haven during the economic crisis and a great diversifier to your portfolio. Let’s take a look at the performance of some of the top gold funds –

(Source: https://www.etmoney.com/mutual-funds/featured/digital-gold-mutual-funds/25 )

• Professional management: Just like any other mutual funds, gold mutual funds are sold by the mutual fund houses with fund manager having the professional expertise to manage the fund’s portfolio. 
• Convenience: Unlike gold ETFs, gold mutual funds do not require Demat account as the purchase can be made through asset management companies. This makes gold mutual fund option a convenient choice for all types of investors seeking exposure into gold as an asset class.

To sum up, with the various flexible features and benefits, Gold Mutual Funds investments can definitely be the smarter ways to invest in gold today. However, keeping the unique characteristics of gold as an asset class, it is important to limit the exposure depending on your investment goals and need.