Can you invest in gold through a mutual fund? Know the truth

Gold has long been held as a valuable investment, prized for its ability to retain value even in turbulent economic conditions. Many people choose to invest in gold directly, buying individual bullion bars or coins that can be stored in safety deposit boxes or other secure locations. However, for those who want gold investment without having to deal with the complexities of buying, purity check, storing, and maintaining physical gold, it is possible to invest in gold through mutual funds.

By pooling the money of investors and buying into gold-based securities, mutual funds can help you benefit from the precious metal’s rising prices while minimising risks associated with direct ownership. Mutual funds offer different ways to invest in gold, including gold ETFs, gold funds, multi-asset funds, and international gold funds.

Gold ETFs

A gold ETF is a type of exchange-traded fund that tracks the domestic physical gold price. These funds are designed to invest in gold bullion, which gives them a strong base of support during periods of market volatility and uncertainty. Simply put, gold ETFs are dematerialised units representing physical gold.

Gold ETFs offer investors the convenience and flexibility of stock investing. They are listed and traded on major exchanges such as the NSE (National Stock Exchange of India) and BSE (Bombay Stock Exchange Ltd.), offering investors an easy and accessible way to gain exposure to this precious metal.

Gold mutual funds

A gold fund is a type of mutual fund that invests in gold-related assets. These assets can include stocks of companies engaged in the gold industry. Some gold funds also invest in exchange-traded funds (ETFs) or other investment vehicles that track the price of gold. Investors can easily invest in the best gold mutual fund in less than 15 minutes through various online platforms.

International gold funds

International gold funds are a type of mutual fund that invest in the units of overseas gold funds and offer geographical diversification. While these funds can be beneficial for those who understand international markets and are comfortable with the associated risks, they may not be suitable for retail investors.

Multi-asset allocation fund

Multi-asset allocation funds fall in the category of hybrid funds. These need to invest at least 10% of their portfolio in three or more asset classes. The allocation to each asset class can vary depending on the objectives of the fund, but most multi-asset allocation funds have a significant portion of their portfolio invested in gold.

While this may be beneficial for diversification purposes, some mutual fund advisors believe that investors cannot adequately trace their portfolio allocation to the yellow metal if they invest in a multi-asset allocation fund particularly to get exposure to gold. Such investors can opt for other paperless alternatives to invest in gold.

Closing thoughts

Mutual funds offer different ways to invest in gold so you can reap the benefits of owning the precious yellow metal while also hedging your portfolio against financial and political disruptions.

However, before you invest in gold funds, you, as a responsible investor, must consider your investment objectives, risks, related charges and expenses. Also, rebalance your mutual fund investment portfolio periodically to ensure your investments are aligned with your strategy.