What Are Gold Mutual Funds And Its Type?

By Author: QuantumAMC
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There are many ways you can invest in gold —coins, bars, jewellery, etc. These are the conventional avenues to invest in gold. But buying gold via mutual funds is a smart, unconventional, and an easy way to invest in gold.
You have mainly 2 options:
1) Gold Exchange Traded Fund (ETF) – Before understanding Gold ETFs, let’s first understand what is meant by Exchange Traded Funds (ETFs). ETFs are schemes offered by mutual fund houses that are listed and traded on a stock exchange. They represent ownership in an underlying security, commodity, or asset.
Therefore, gold ETF is an instrument that represents ownership of gold assets. This gold is held on your behalf by an appointed custodian for the ETF. Gold ETFs track prices of physical gold. Each unit of gold in the fund you can buy is equal to 1 gram of gold (some fund houses also offer 1 unit at 0.5 gram of old). When you buy a Gold ETF, you get a contract indicating your ownership in gold equivalent to the rupee amount of your investment. A few gold ETFs give the option of taking physical delivery and some don't; and if they do, it’s only after exceeding ...
... a certain quantity.
Gold ETFs are listed and traded on a stock exchange. Hence, these can be bought and sold like stocks on a real-time basis. But to own them, you need to open a demat account along with a share trading account with your broker. While transacting in Gold ETFs, you are required to simply call your broker and place your orders (at the prevailing market price), or transact through the online trading application he/she provided (broker).
2) Gold Savings Fund – Also known as a “gold fund”, is another unconventional way to invest in gold. A gold savings fund is a fund of fund scheme that invests its corpus into an underlying Gold
ETF which benchmarks the performance against the physical prices of gold. Hence by doing so, the returns closely correspond to the one clocked by the underlying gold ETF. However, unlike a Gold ETF (where you hold units in your demat account); in a gold fund, you are allotted units of the fund in a paper form, which would reflect in your mutual fund account statement.
Suitability: Both, gold ETF and a gold savings fund are smart ways to invest in gold without actually tangible hold. If you do not possess a demat account, gold fund is an option for you. Note, the precious yellow metal as an asset class is an effective portfolio diversifier and shows its trait of being a safe haven during economic uncertainties. From an asset allocation standpoint, you consider apportioning some portion (say, for example, 10%-15% of your total investment portfolio to gold) and hold it for the long-term.
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