Should you invest in Gold Funds in India

Physical gold such as gold jewelry or gold coins has several drawbacks such as storage in safety vaults and the associated locker charges. They also demand price markups due to the design and making charges. Apart from these, purity issues and lack of flexibility in investment amounts can make buying physical gold inefficient. In contrast, Gold ETFs and Gold Fund of Funds have become popular forms of investment. Gold ETFs have received rising net inflows from investors. The number of folios in Gold ETF surged by almost 10% in June to Rs. 18.32 lakh from Rs. 16.68 lakh in May as per monthly data from AMFI. Another way of investing in Gold digitally and overcoming the drawbacks of investing in physical gold is by investing in gold fund of funds instead. 

The meaning of Gold Fund of Funds is an open-ended fund which has an underlying investment in Gold ETFs, that in turn is backed by physical gold and tracks the domestic price of Gold.  The NAV is declared at the end of the trading day similar to other mutual funds. One can invest in a Gold Fund of Funds via an SIP, where you can invest a minimum of Rs 500. When comparing gold funds vs gold ETF, one doesn’t need a DEMAT account for investing in a gold fund of funds. The capital gain arising out of redeeming Gold Funds within less than three years is subject to short-term capital gains tax which will be taxed as per Income Tax slabs. For capital gains arising for a holding period of more than three years, then it will be long-term capital gain, which will be taxed at the rate of 20%.  

Gold acts as a strategic asset in an investor’s portfolio, given its ability to be an effective risk-reducing portfolio diversifier. It helped alleviate losses for investors who owned them during the pandemic.

With the fall in gold prices in response to the strengthening of the US dollar in Jun 2021 and talks of interest rate tightening as early as CY 2023, investors can consider allocating a portion of their portfolio to Gold.

While selecting a Gold fund of Funds, just like any mutual fund, investors need to analyze the fund based on certain quantitative and qualitative parameters, that one can use to arrive at the best gold funds as per their requirements. Additionally, it would be best if one were to keep their financial goals, risk appetite and investment horizon in mind.

Disclaimer: The views expressed here in this Article / Video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The Article / Video has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of the Article / Video should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in the Article / video.

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