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Gold is an integral part of our Indian culture.  Gold has always had a special place at weddings, festivals, or investments. But buying physical gold can be a hassle for some due to its safety and storage issues. The solution to this is Gold Mutual Funds. In this blog, I am going to give you detailed information about gold mutual funds, which will help you understand and choose this investment option.

What is a Gold Mutual Fund?

Gold Mutual Funds are funds that invest primarily in gold-related assets, such as Gold ETFS (Exchange Traded Funds) or stocks of companies involved in the mining and distribution of gold. These funds allow you to benefit from the appreciation of its price without having to buy the actual gold. In India, these funds operate as Fund of Funds, meaning they invest directly in Gold ETFS. This gives you an investment directly linked to the price of gold, but without the worries of storage and security.

Information based on the latest statistics:

In 2024, the Indian mutual fund industry has reached new heights. According to data from AMFI (Association of Mutual Funds in India), the total Assets Under Management (AUM) of mutual funds reached Rs 68 lakh crore in November 2024. Of these, the AUM of Gold ETFS was Rs 58,900 crore, which is an increase of 89% over the last year. Some of the popular Gold Mutual Funds and their 1-year annualized returns (till 2024-2025) are as follows:

• HDFC Gold Fund: 31.45% (AUM: Rs 2,290 crore)

• ICICI Prudential Regular Gold Savings FOF: Around 29% (AUM: Approx. Rs 1,000 crore)

• SBI Gold Fund: Around 28% (AUM: Approx. Rs 1,800 crore)

Note: These returns are historical and do not guarantee future performance. Do your own research before investing.

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Benefits of Gold Mutual Funds:

There are many benefits to investing in gold mutual funds, which can strengthen your portfolio.
Below are some of the key benefits:

1. High liquidity:

In Gold Mutual Funds, you can buy or sell units at any time, which is possible through an Asset Management Company (AMC) or a stock exchange. This is easier and faster than with physical gold.

2. Safety and transparency:

These funds come under the regulation of SEBI (Securities and Exchange Board of India), which increases their credibility. There is no concern about the purity of gold here, as the price of gold in the fund is linked to the market price.

3. Low Cost:

There is a cost of storage and insurance to buy physical gold, but in Gold Mutual Funds, these costs are very low. This increases your overall returns.

4. Portfolio Diversification:

There is a negative correlation between the price of gold and the equity market. That is, when the stock market falls, gold prices are likely to rise. This provides stability to your portfolio.

5. Investing through SIP:

You can invest small amounts every month through a Systematic Investment Plan (SIP), such as starting from Rs 100 or Rs 500. This makes investing affordable for the common man.

Disadvantages of Gold Mutual Funds:

Like any investment, Gold Mutual Funds also have some disadvantages, which you should understand before investing:

• Market Risk: Gold prices depend on global demand and supply. This can make the value of the fund volatile. For example, changes in the value of the US dollar affect the price of gold.

• Lower returns than equity funds: Gold Mutual Funds generally give lower returns than equity funds. The average 5-year returns are around 13-14%.

• Expense Ratio: Since Gold Mutual Funds are in the form of Fund of Funds, their Expense Ratio is higher compared to direct Gold ETFs. This can reduce your overall returns.

• Tax Rules: Gold Mutual Funds are subject to the tax rules of debt funds. If you hold the investment for less than 3 years, Short-Term Capital Gains (STCG) is applicable as per your income tax slab. For more than 3 years, Long-Term Capital Gains (LTCG) is applicable at 20% (with indexation benefit).

Conclusion: 

Gold Mutual Funds are a great investment option, especially for those who want to invest in gold but don't want to go through the hassle of buying and storing physical gold. However, it is important to consider the expense ratio, market risk, and your financial goals while investing. In my opinion, if you are looking to diversify your portfolio and are looking to invest for the long term, Gold Mutual Funds can be a safe and profitable option for you.