Gold Mutual Funds

What is a Gold Mutual Fund?

A gold mutual fund is a type of mutual fund that lets you invest in gold without actually buying or storing physical gold. Instead of dealing with lockers, purity checks, or making charges, you invest through a fund that tracks the price of gold or invests in gold-related assets. It is a practical option if you want gold in your portfolio but prefer convenience, transparency, and easier liquidity.

How Do Gold Mutual Funds Work?

Gold mutual funds pool your money with that of other investors and invest it in gold-linked assets instead of physical gold. Most of these funds put your money into Gold Exchange Traded Funds (ETFs), which closely track the market price of gold.

The value of your investment changes in accordance with gold prices in the market. Also, your fund is managed by a mutual fund manager who ensures the fund allocation stays aligned with gold prices.

Types Of Gold Mutual Funds

There are different types of gold mutual funds; each offers you exposure to gold in a unique manner based on where your money is invested.

Gold ETF Fund of Funds (FoF)

Gold ETF FoF primarily invests in Gold ETFs. You invest through a regular mutual fund, so you do not need a demat account, even though the underlying ETF itself is traded on the exchange.

Gold Mining Funds

These funds invest in companies involved in gold mining and related activities. Your returns are dependent on the company’s performance and the global gold prices, making them more volatile compared to pure gold funds.

International Gold Funds

International gold funds invest in overseas gold ETFs or global gold-related companies. Such funds allow your investments to be influenced by international market movements, currency fluctuations, and gold prices.

Benefits of Investing In Gold Mutual Funds

There are numerous benefits of investing in gold mutual funds in India. Some of them are:

Lower Storage Costs

Gold funds are held digitally in your investment or demat account. Thus, you do not have to rent or purchase lockers or storage units. In fact, the only ongoing cost you pay is the fund’s expense ratio.

Lower Purchase Costs

Investing in gold mutual funds saves you from paying extra charges associated with gold. For example, making charges, GST, and other levies. This makes them a more cost-effective way to invest in gold.

Better Liquidity

You can sell or redeem Gold fund units as per the prevailing market values more effortlessly from the convenience of your home or any place where you can access your demat account. This makes the liquidity of gold mutual funds quicker and more transparent than other investment forms.

Risks Associated With Gold Mutual Funds

Gold mutual funds are known for their stability, but they are not risk-free.

• Gold prices are influenced by global events and inflation trends. These trends directly impact your gold mutual fund India value.
• Dollar-INR rates have an impact on rupee value of gold. Therefore, fluctuations in currency can influence your returns even when global gold prices stay constant.
• Gold mutual funds do not invest directly in gold, and prices are just a reflection of the fund’s share price. However, over time this variance could possibly have an impact on performance.
• Economic and geopolitical news around the world can trigger short-term fluctuations in gold prices.
• Gold does not provide any interest or dividends. So, price appreciation is what your returns will depend upon.

Who Should Invest In Gold Mutual Funds?

Here are a few scenarios when you should think of investing in gold funds:

• If most of your money is invested in equity or debt, gold mutual funds can help increase the stability. Gold has historically been a safe-haven asset and can assist in mitigating risk in an overall portfolio.
• If inflation is slashing your returns, gold funds can protect your purchasing power. As a matter of history, Gold does provide inflation protection.
• If a goal of yours is to build long-lasting wealth, gold mutual funds can complement that. Gold has historically seen consistent returns despite the ups and downs of various market cycles.
• If you’re looking to make some short-term plays on gold prices in response to global events, or perhaps economic volatility, a gold mutual fund is a flexible and easy way to carry out that strategy.

Taxation Of Gold Mutual Funds

Gold mutual funds are treated as non-equity capital assets for tax purposes. In other words, it means their taxation is different from that of equity mutual funds.

Any gains you make, irrespective of the holding period (may be for short-term or long-term); will be taxed as per your applicable income tax slab rate. There is no indexation benefit available.

Since these funds are non-equity in nature, Securities Transaction Tax (STT) does not apply. However, since tax rules can change over time, you should check the latest guidelines or consult a tax advisor before investing.

How To Invest In Gold Mutual Funds?

You can invest in gold mutual funds in a simple and flexible manner. The following discusses the ways you can invest in gold mutual funds:

• Step 1: Open the Kotak Neo app or official website and log in securely using your registered credentials and the OTP sent to you.
• Step 2: Click on the “Mutual Fund” tab located next to the F&O tab on the main menu.
• Step 3: Use the search bar or browse the “Collections” section to find the gold mutual funds.
• Step 4: On the scheme page, select “Start SIP” for regular investments or “One-time” for a lump sum investment.
• Step 5: Enter the investment amount and choose your preferred payment method, such as UPI or Net Banking.
• Step 6: Complete the payment using your UPI PIN or net banking credentials to confirm the transaction successfully.

Things To Consider While Investing In Gold Mutual Funds

Before you put money into gold mutual funds, think about these important things:

• Make sure you know why you want to invest. Your goal should help you decide whether to diversify your portfolio or protect your capital.
• Gold tends to work better over a medium- to long-term period. Make sure your time frame matches the nature of gold as an asset.
• It is important to compare different gold funds (preferably the top 5 gold mutual funds in India) based on how well they have done and how much they cost.
• Check the fund manager’s history, the reliability of the platform you invest through, and understand the tax treatment.