A gold fund is an open-ended investment instrument. It invests in the stocks of the entities mining and distributing gold. These funds mimic the movement of physical gold prices.
The reason why gold funds are so popular in India is that they have a good potential to aid your wealth creation journey. It is a valuable commodity, which rises in value during economic crises. This is why it is called a safe-haven asset.
Moreover, the AMCs (Asset Management Companies) have experts managing the funds, ensuring effective allocation. This facility helps you make the most out of your investment.
Before you start searching for a fund to invest in, take a look at this list of 5 things you should know about when investing in these funds:
Gold Can Provide Protection Against Market Volatility
Gold tends to appreciate, when the economy is performing poorly or when markets are falling. The yellow metal is considered a steady investment, with intrinsic value. The price of gold reached new highs in India, during the pandemic crisis in 2020. Historically, gold funds have done well during a financial crisis.
Benefits of Digital Gold Funds
Instead of buying physical gold, investing in gold funds and ETFs (exchange Traded-Funds) has many upsides. To begin with, it rids you from storage and purity concerns. Owning the metal in the physical form is subjected to value depreciation when you sell it to a jeweller. Besides, buying gold will cost you much more because of the added GST.
Gold Handles Inflation Much Better
Historically, gold prices have seen a surge during inflation. This is because gold has been considered a safe-haven investment among investors, resulting in high demand for the yellow metal. Over the long term, gold has been able to provide higher-than-inflation returns.
Easier to Sell
Due to so many advantages, gold stocks are always in high demand. Thus, these instruments are relatively easier to sell. Also, having a fund instead of gold in physical form is much better. This is because when you sell the metal to the jeweller, he will charge you an amount citing the decline in condition. This depreciation may have a negative impact on your total return.
Regulating Your Investment
Striking the right balance with the gold fund in your portfolio is very crucial. You should reserve some part of your portfolio for these investments. However, it is also essential to diversify your portfolio by investing in other assets. This ensures your risk is spread across several assets. An asset management company can help you to achieve diversification.
Traditionally, gold has been considered a very sought-after investment. In India, especially, people have had a great love for metal. The gold funds and ETFs have investors have exposure to the asset in a much more hassle-free way. However, you should do your research and collect as much information as possible before you start investing in the yellow metal.