Gold funds – Basics and major factors to consider before investing

India has a long and illustrious history of investing in gold as a treasured asset that is passed down from generation to generation. Modern times have brought innovation that allows investors to bring the same trust and security of physical gold into digital investments. With the advancement in technology, gold funds now offer an efficient new way to invest in gold without any hassle or delay.  

Gold funds provide almost the same benefits as investing in physical gold without the associated hassle of storage costs, maintenance charges, and fear of theft. To ensure these funds add value to your investment portfolio, here is an overview of gold funds and crucial factors to consider before investing in them.

Understanding gold funds basics

Gold funds are investment vehicles that hold assets in various forms of gold. This can include physical gold, shares of companies related to gold industries, etc. These funds typically offer investors a way to gain exposure to the precious metal without having to directly purchase and store it themselves. 

Major factors to consider before investing in gold funds

  • You can buy gold funds in different ways

There are different ways to invest in gold funds, and each has its own benefits. For example, you can invest in gold mutual funds without opening a demat account unlike gold ETFs. However, ETFs may offer greater liquidity and easier accessibility for some investors. 

Another option is buying Sovereign Gold Bonds, which are issued by the RBI (Reserve Bank of India) and hold their value based on the current gold rate. Moreover, they offer a fixed interest rate and tax-free redemption of maturity. 

You can even invest in digital gold using payment apps. It is certified pure, fully insured, and stored safely and, if needed, you may also request physical delivery of gold.  

  • Risk versus returns

Before you invest in gold funds online, consider how they fit into your overall investment plan. Note that equity and gold have an inverse relationship – when the price of gold increases, stock prices tend to fall – you can use this knowledge to maintain a balance between both types of investment. Taking some risk with equities while playing it safe with gold can help maintain a steadier return on your overall portfolio. 

  • Fees and charges

Before investing in any fund, it’s essential to know the associated fees and charges. For example, gold ETFs have lower management fees than gold mutual funds since they are passively managed. Thus, it’s wise to understand different expenses like account maintenance fees, transaction charges, etc., so that you know how much money you are paying in total for your investments.

  • Choosing the SIP mode

Depending on your objectives, you can use the SIP (Systematic Investment Plan) method with gold mutual funds. An SIP allows you to invest small amounts at regular intervals, and thus can be an ideal way to build a mutual fund investment portfolio over time without overextending your budget.  

An SIP has numerous advantages – your investment amount in the chosen gold fund remains consistent, you can enable the auto-pay feature to not miss any instalment, you get exposure to the gold market accordingly in different market conditions, and most importantly, you do not have to worry about timing the market.

Wrapping up

Gold can be an essential part of your investment portfolio when the major factors associated with it are taken into account. This includes observing factors such as inflation, market liquidity, volatility, type of fund you invest in, and cost. This helps to ensure that the gold fund investment you choose is aligned with your goals and risk tolerance.