Gold holds a special place in the hearts of Indians not only because of its financial value but also for social and emotional reasons. More and more investors are looking to benefit from the change in gold prices without having to physically own it. And this is possible by investing in Gold Exchange Traded Funds or ETFs and Gold funds in India. While the investment in the former requires you to open a demat account, investment in gold funds can be done directly or through the distributors. Gold mutual funds are open-ended funds that invest in the units of Gold Exchange Traded Funds or ETFs which in turn buy gold bullion of 99.5% purity to earn a return over it
Understanding Gold Funds
The gold funds are suitable for investors looking to take exposure to gold without physically purchasing it.
Their main features are:
- These funds are managed by fund managers who invest in gold ETFs as per the objective of the fund.
- Since the funds invest only in Gold ETFs, they mirror their performance to a large extent.
- The Net Asset Value of the gold fund may, however, be influenced by the overall price movement of the gold in the market.
Tips to Invest in Gold Funds
Here are some tips to help you gain the maximum from your investment in gold funds.
#1 – Diversify Your Investments
Investing in gold funds is a good way to diversify your investments besides creating a hedging strategy. Gold can be used as a hedge against equity market changes, falling currency prices and inflation.Allocate a certain percentage of your portfolio for investment in gold funds.
#2 – Check the Taxation Rules for Gold Funds
The taxation of gold funds in India is similar to the taxes applicable todebt funds. If the holding period is less than three years, the returns attract the short-term capital gains tax as per the applicable rates. If the holding period is more than three years, the returns will attract long-term capital gains tax of 20% withindexation. Plan your investment accordingly.
#3 – Choose the SIP Route
If you do not have a lumpsum amount to invest in gold funds, the Systematic Investment Plan option allows you to invest amounts as small as Rs 100. You can use a Systematic Investment Plan calculator to find out the amount that you need to invest to build a specific corpus or achieve a goal.
#4 – Review Your Gold Fund Investment
Gold tends to perform well when stock markets are down or there is any kind of political insecurity. But the situation may change when the equity markets are up. So, you should keep on reviewing your investmentsregularly.
#5 – Select the Best Fund
Choose a gold fund for investment after reviewing its past performance, the track record of the asset management company and your investment horizon and risk appetite. Also, do check the expense ratio and opt for funds with low expense ratios.
Apart from these, do not forget to check the exit charge.Choose gold funds in India that do not have an exit charge which means you can sell your holdings at any time without attracting any kind of penalty from the mutual fund company.
