Gold Mutual Funds- How To Invest In Gold-Top Gold Mutual Funds
Gold Mutual Funds- How To Invest In Gold-Top Gold Mutual Funds

Gold Mutual Funds: How To Invest In Gold-Top Gold Mutual Funds

 

For a long time immemorial, gold has been a safe haven for Investment purposes. The reason is due to the fact the market has experienced significant growth over the past 10 years. To this end, both experience and newbie investors are considering mutual funds as one of the best sectors to make money.

Before you invest in mutual funds, it is important that you carry out due diligence and be vigilant. This will make you avoid losing your hard earned money.

In view of the above, we will take you through the Indian gold mutual fund market, the pros and cons of the market, how to invest in gold mutual funds, as well as mention some great gold mutual funds.

WHAT IS A GOLD FUND?

Mutual funds can be described as a portfolio of shares which are collected from different investors. Mutual funds are also regarded as Exchange Traded Funds (ETF). To this end, a gold fund is an Exchange Traded Fund which primarily invests in gold manufacturing companies or gold bullion. In a situation where the funds are invested in gold bullion or the stocks of gold miners, then the price of shares with respect to these funds will align with the spot price of gold. One of the aims of this funds is to conveniently get returns from the market.

BENEFITS OF GOLD FUNDS

The following are some of the benefits of investing in a gold mutual Fund;

  • Investment in this market will expose investors to the gold asset in a convenient way.
  • Investment in the gold mutual fund doesn’t require opening a Demat account.
  • Investors will benefit greatly from the value of this precious metal without processing or mining gold
  • Investment in the gold mutual fund is a safe way to diversify your investment portfolio
  • Gold is a great investment decision compare to investment in fiat-based currencies.
  • The purpose of the gold mutual fund is for growth and dividends.

HOW TO INVEST IN GOLD?

Before now, investment in gold was usually the physical buying and selling of gold such as bullions, coins, jewelry or artifacts. But the investment process is no longer the same nowadays. The process of investing in gold involves buying Exchange Traded Funds. Gold ETF is much the same as buying the physical gold but without the stress of storing the precious metal.

Investment in a gold mutual fund is convenient because it eliminates the theft of physical gold. In addition, gold fund investment means buying the shares of the various companies involved in the gold mining process. Having that in mind, let us now consider the various ways of investing in this precious metal using the below table.

Gold  ETFs (Exchange Traded Funds) Gold Funds
Investment in physical gold  Investors doesn’t buy the physical gold but a proportionate value of gold The investment is made in bullion and companies involved in mining gold
Investment in gold doesn’t require a Demat account The investor needs a demat account No requirement for a demat account to invest
Market fluctuations directly affect the prices of Gold Changes in gold price affect the prices of Gold ETFs Changes in the price of gold does not affect Gold funds directly
There is no additional charges except that of the physical gold itself Gold ETFs involve asset management and brokerage charges Management of the gold funds involves a minimum charge.
Buyers are prone to  risks of theft and burglary Gold ETFs remove the burden of trading gold in the physical form Eliminates the risk of theft/ burglary
No paperwork required for investing Paperwork required for investing in Gold ETFs Paperwork is required for  investing in Gold funds
Systematic Investment Plan (SIP) not available No SIP option

 

SIP available
Best suited for conventional investors Best suited for  investors who have the required skills and time to trade Best suited for investors who take calculated risks while expecting high returns

 

If you are convince that this precious yellow metal is worth your investment, in order to help you decide which Gold fund to invest in, we have put together a list of some of the best Gold Funds in India.

BEST GOLD MUTUAL FUNDS

Reliance Gold Savings Fund- Grow

AMC Name: Reliance Nippon Mutual Fund

  • Quarterly Average AUM: ₹37.25 crore.
  • Net Assets: ₹69305.35 lakhs
  • Type: Open Ended
  • Investment Plan: Growth
  • Minimum Investment: ₹5000
  • NAV: ₹12.73
  • Expense Ratio: 0.7%
  • SIP Minimum Initial Investment: ₹1000
  • Entry Load: 0%
  • Exit Load: 2%
  • Portfolio Holdings:
  • Mutual Funds: Reliance ETF Gold BeES-99.91%
  • Money Market: CBLO-0.27%

Kotak Gold Fund – Growth

AMC Name: Kotak Mahindra Asset Management Company

  • AUM: ₹169.65 cr
  • Net Assets on 30-06-2017: ₹16778.52 lakhs
  • Type: Open Ended
  • Investment Plan: Growth
  • Minimum Investment: ₹5000
  • NAV: ₹12.45
  • Expense Ratio: 0.7%
  • SIP Minimum Initial Investment: ₹1000
  • Entry Load: 0%
  • Exit Load: 2% on or before 6 months.
  • Portfolio Holdings:
  • Mutual Funds: Kotak Mahindra Mutual Funds: 98.67%%
  • Collateral Lending and Borrowing Obligation: 1.44%

Kotak Gold Fund – Dividend

AMC Name: Kotak Mahindra Asset Management Company

  • Quarterly Average AUM: ₹12.18cr
  • Net Assets: ₹1218.39 lakhs
  • Type: Open Ended
  • Investment Plan: Dividend
  • Minimum Investment: ₹5000
  • NAV: ₹12.45
  • Expense Ratio: 0.7%
  • SIP Minimum Initial Investment: ₹1000
  • Entry Load: 0%
  • Exit Load: 2% on or before 6 months.
  • Portfolio Holdings:
  • Mutual Funds: Kotak Mahindra Mutual Funds: 98.67%%
  • Collateral Borrowing & Lending Obligation: 1.44%

SBI Gold Fund – Growth

AMC Name: SBI Funds Management Limited

  • Quarterly Average AUM: ₹385.68 crores
  • Net Assets: ₹38567.92 lakhs
  • Type: Open Ended
  • Investment Plan: Growth
  • Minimum Investment: ₹5000
  • NAV: ₹9.55
  • Expense Ratio: 0.43%
  • SIP Minimum Initial Investment: ₹1000
  • Entry Load: 0%
  • Exit Load: 1% for exit within 1 year.
  • Portfolio Holdings:
  • SBI Gold Exchange Traded Scheme: 99.84%
  • Miscellaneous: 0.16%

RISK INVESTING IN GOLD MUTUAL FUNDS

Despite the numerous benefits of investing in gold Mutual funds, the following are some of the risks inherent in the sector;

  • Gold prices fluctuation: Gold prices are normally affected by the law of demand and supply. Just like other commodity manufacturers, the gold Mutual fund also experience a high risk. This risk is due to the fluctuating nature of the gold market around the world and it is beyond the control of the gold funds.
  • No benefits of taxation: Gold fund doesn’t have the benefits of taxation unlike its equity fund counterpart. Instead, what gold fund has is a 10% tax on capital gains, although on a long term basis.

 

REGULATORY FRAMEWORK OF MUTUAL FUNDS IN INDIA

The importance of regulating a sector cannot be overemphasized. Gold Mutual funds need a proper Regulation in order to avoid a conflict of interest that may rise between investors and managers. Such conflict can mar the system and expose the investors to so many risks such as excessive churning leading to high cost, poor portfolio selectivity, higher portfolio risk, and delayed transaction, among others. To this end, market regulators steps in with a view to curbing all these identified risks.

Regulations are not expensive, but the cost is divided into the direct cost (compliance) and indirect cost (negative effect on performance). Therefore, it is essential to understand whether the gold Mutual fund regulators are excessive in their operations or not. It is pretty difficult for the sector’s regulators to know the exact control to impose on the sector. Under-regulator could possibly mean that investors are expose to extreme risk and over-regulation can also translate to lower returns to the investor. A good regulatory framework should ensure that there is a minimal error in the regulatory process.

PRINCIPLES OF REGULATORS

Currently, there are several funds in the gold Mutual fund market, hence making the sector complicated. Regulating all the funds including sponsors, fund manager, investors, and other players will ensure a smooth conduct of business.

In India, the various gold Mutual funds are regulated by SEBI, RBI, AMFI, and Investor’s Association of India. In order to ensure good governance in the sector, the following principles are advance;

  • To correct all the market’s failure and imperfections with a view to improving and enhancing a healthy competition.
  • To increase Investor’s benefits
  • To improve Investor’s confidence by advancing minimum level of quality.

 

The following clearly shows how the regulatory measures are classified;

  • Imposing the requirements for funds managing firms
  • Auditing and monitoring the activities of investment management firms
  • Rating and disclosing of management firms
  • Providing insurance
  • Setting the standards that investment management firms will comply with.
  • A close relationship should be established between the industry and regulators
  • The regulators should be empowered in order to enforce Regulatory measures
  • The regulators should not discriminate the industry players because it may lead to a loss of confidence in the market
  • The regulators should ensure that they treat all investors as partners in progress in order for the market to run smoothly.

 

CONCLUSION

Mutual funds are also regarded as Exchange Traded Funds (ETF). Therefore, a gold fund is an Exchange Traded Fund which primarily invests in gold manufacturing companies or gold bullion. In a situation where the funds are invested in gold bullion or stocks of gold miners or producers, then the price of shares with respect to these funds will align with the spot price of gold. One of the aim of this funds is to conveniently get returns from the market.

There is no investment that does not have its pros and cons. The sole purpose of investing in the gold Mutual fund is to make higher returns than what other investment portfolios would yield.

In conclusion, potential investors in the gold Mutual funds should carry out their own due diligence before investing on the market.

 

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