SIP or Systematic investment route has been suggested to be the easiest given no unnecessary burden on the investor as well as the financial discipline that it involves, now given the pace at which equities have been moving and have been highly volatile and only gains forecasted for the precious yellow metal, to maintain a well-diversified portfolio one can also invest in Gold Mutual funds via a SIP plan.
Also, experts after a tremendous growth rate in gold in a span of 10 years, further see gold growing at a fast pace in the coming too years too, said Aditya Pethe, Director, WHP Jewellers.
Also, if gold prices will show up correction, it will be of a small quantum in comparison to the returns that it has generated over a year.
What are Gold Mutual Funds?
These are open ended funds and in it fund managers buy gold via ETFs on behalf of investors. The demat account is not required for investing in these gold mutual funds. These funds carry value based on the NAV which is disclosed at the end of trading hours.
Returns from gold mutual funds is rather seasonal basis the return generated by the underlying gold. Now in the current distressed times, the returns have been handsome on these assets too.
Where to purchase these gold mutual funds from?
Gold MFs offering platform can be approached and after the KYC formality is duly completed one can invest in these funds.
Why one should invest in gold mutual funds?
Gold investment serves as a hedge against investment in other market linked instruments as well as inflation and similar can be the reason for putting money into gold mutual funds.
Returns from some of the well known Gold Mfs
|Gold MF||Expense Ratio||1-year return||NAV as on October 8, 2020|
|Quantum Gold Fund||0.78%||28.56%||2185|
|Axis Gold Fund-Growth||0.67%||29.77%||15.56|
|HDFC Gold Fund||0.6%||30.59%||16.07|
|SBI Gold Fund-Growth||0.52%||31.40%||15.64|
Taxation of Gold mutual funds
Gains from gold mutual funds are taxed similar to physical gold, if these funds are sold off within 3years of holding then gains will be added to investors total income and taxed. Long-term capital gains on units held for more than three years are taxed at 20.8% (including cess) with indexation benefits.
Where do Gold mutual funds score over Gold ETFs?
Gold mutual funds see investment into gold as well as other liquid funds which is not the case with gold ETF
Also, SIP route of investment can be taken for investing into Gold mutual funds but not in Gold ETFs.
Drawbacks of Gold mutual funds in comparison to Gold ETFs
1. Gold mutual funds through investment via a broker entail a higher cost which is usually 1.5% of the AUM.
2. In gold MFs, units cannot be transferred into metal while it can be done so in Gold ETFs.
3. There is better liquidity in Gold ETFs and also do not carry any exit load when redeeming investments.
Also as these instruments are backed by gold, investors at one point in time may or may not reap sizeable gains from the avenue and hence are put in the moderately risky category.