Gold mutual funds invest in plans that purchase gold ETFs. Gold mutual funds track the value of the units of gold ETF schemes, which in turn reflects the value of physical gold. These mutual funds generate income based on the performance of the underlying asset. Fixed-capital mutual fund plans that make investments in physical gold with a purity of 99.5% are known as gold exchange-traded funds (ETFs).
Gold ETFs invest between 90 and 100% of their corpus in physical gold and this gold comes from banks approved by the Reserve Bank of India (RBI). Gold ETFs also invest a smaller part (0 to 10%) of their corpus in securities representing debt. Since gold ETFs invest in physical gold, the returns they offer are almost similar to those offered by physical gold. A gold mutual fund is an investment fund that invests in gold indirectly by investing in gold ETFs as an underlying asset.
The best way to think about a gold mutual fund is that it's a fund within a fund. Gold mutual funds can also consist of the shares of companies engaged in mining, production, processing, and other activities associated with the life cycle of gold. Compared to gold ETFs, gold mutual funds offer slightly more exposure to risk because they invest in gold stocks, which tend to be price sensitive. Some people may prefer to buy digital gold or gold ETFs instead of buying physical gold bars.
Like gold mutual funds, the market value of gold ETFs can be close to the spot price of gold. Compared to mutual or gold-listed funds, gold mining stocks offer investors more direct exposure to the precious metal. While gold ETFs are financial vehicles that track the price of gold, gold mutual funds are basically a fund within a fund that can include ETFs, gold mining stocks, and other gold-related assets. However, risks are mitigated because gold funds are diversified investments compared to gold stocks, which have volatile prices.
Gold funds are popular with investors because they offer an affordable way to invest in the precious metal without having to manage a physical investment in gold. There are many ways to invest in gold given the variety of investment vehicles available in the gold market. So what should you buy this time? Physical gold, sovereign gold bonds (SGB), gold ETFs (gold exchange-traded funds), digital gold or gold mutual funds? Like gold mutual funds, investing in gold through a gold ETF can be a convenient and accessible way to expose yourself to the safe haven asset. By understanding the different characteristics between gold mutual funds and gold ETFs, you can hopefully determine which one best suits your investment strategy and financial objectives.
So, unless you need the gold metal to make ornaments for an event such as a family wedding, it's best to invest in dematerialized gold.