Gold Mutual Funds: the better way to invest in gold
Updated: Jun 8, 2020
“Gold prices gain ₹315 on strong global cues”
“Gold price today: Yellow metal declines on a rally in equities”
“Gold sales likely to decline 50% on Dhanteras”
“Gold prices may find support as the US reports fewer jobs”
These are four different headlines on the same day on pieces about gold. Each of these, telling of varied opinions on gold prices and their role in the economy.
Gold serves as security when other assets are not doing so well. Gold can also add an element of having more than the regular fixed deposits, insurance policies and a great addition to your mutual fund portfolio too.
Let’s change perspective for a moment, last year on Diwali I was gifted a few grams of gold. I am not going to lie, I love jewellery and gold is appreciated to the extent that I will consume it. My only worry on receiving this gold was bringing it with me to Bangalore and then worrying about storage and security ( I don’t have a bank locker yet, because lockers charges are far too high).
That gold is a valuable commodity is not unknown, however, how much gold is enough? And what is the best form of holding gold?
Being a tangible asset, which can be worn or displayed, one always has an emotional attachment to physical gold. Also, for an individual, it is easy to buy physical gold. You can buy it in the form of jewellery or gold biscuits and coins from jewellers. Other than from jewellers, you can buy gold coins from certain banks as well.
Fun fact: India is the second-largest consumer of gold in the world. A large portion of the gold Indians buy is used for the 10,000 traditional Indian weddings held every year.
However, the risks of holding physical gold outweigh the benefits of the investment itself. What I would recommend is, investing through gold mutual funds. Several reasons for this:
Not held in physical form
Investing through gold mutual funds ensures that you are holding gold in a financial form. Most mutual fund houses have a gold fund that is directly linked to gold prices and based on actual trend and analysis v/s assumptions.
Investing through gold mutual funds gives you the opportunity to invest as low as ₹500 a month as opposed to buying a minimum 1 gram of gold in physical form or 1 unit of gold in ETF form.
Demat account not required
When you invest in gold through ETF’s or exchange-traded funds, 1 unit of gold quantifies to 1 gram of physical gold. However, you need to have a Demat account for this which comes at its own costs. These days, there’s a lot of talk around sovereign gold bonds as well, however, there is a maturity period of 8 years attached to these and they cannot be easily liquidated earlier than that.
Since gold mutual funds form a part of an AMC, they are regulated by AMFI and SEBI and unlike investing in digital gold. Digital gold is up until now an unregulated investment avenue and there is no recourse in the case of a default.
At Basis, we recommend that you could go up to a limit of 10% of your portfolio in gold. To help with this, our app holds a feature to invest directly into gold mutual funds, whether through the SIP route or as and when you have lumpsum amounts.
So this Dhanteras, instead of planning to buy that 1 gram of gold, making a trip through the traffic, worrying about bringing it back home safely and storage, consider mutual fund investments You also get a statement from the mutual fund house and are regularly updated on the movement on your asset through the app.