What are gold mutual funds?

Gold mutual funds are mutual funds where a significant portion of the assets are invested in companies or assets related to gold, meaning they don’t directly invest in gold.Most funds invest in gold ETFs, and some invest as much as 90 to 100 percent of their corpus in gold ETFs.Gold is considered a perennial investment. In the past year, gold has given a return of around 19 percent, and over the last three years, it has provided a return of approximately 17 percent.

Whether the economy is experiencing a boom or a downturn.Gold is always considered a safe hedge, a good way to protect against losses. Especially during times of volatility in the stock market and the economy, gold tends to shine even brighter.

Now, let’s find out what are the features and benefits of gold mutual funds:

Investing in gold funds is easier compared to physical gold, because you can start with investments as low as one thousand rupees through SIP. Unlike gold ETFs, you don’t necessarily need a demat account to invest in gold mutual funds. In other words, you can invest in them by filling out physical forms.

Within the lock-in period of gold funds, you may be subject to an exit load if you sell your units. Additionally, there is a fee for investing in these, known as the total expense ratio.

Due to this fee, the total return decreases, making the cost of gold funds relatively higher.Because they primarily invest in ETFs, and each ETF has its own expenses.

Talking about returns in gold mutual funds, in the past year and five years, most gold funds have delivered a good double-digit return.

Like debt funds, gold mutual funds also attract taxes, whether it’s for long-term benefits or short-term. These investments will be included in the investor’s total income, and the investor will need to pay taxes according to their tax slab.

Now the question arises: should one invest in gold mutual funds?

Tax and investment expert Balvant Jain says if someone wants to invest in digital gold, then gold mutual funds are a good option, but they should also consider other better alternatives.

For example, Sovereign Gold Bonds are a better alternative to consider.

Taxes on SGBs are lower, and with the additional benefit of a guaranteed interest rate of 2.5 percent, the overall return can be more favorable.

Similarly, if you want to take advantage of trading in gold, you can consider investing in Gold ETFs.

In summary, if you want to benefit from gold and wish to avoid the hassles of storing and securing it, then investing in digital mediums like gold mutual funds is a good choice.

However, remember that your investment in your portfolio should ideally be only around 5 to 10 percent. Also, keep in mind that such investments should typically constitute only 5 to 10 percent of your portfolio.