Gold Mutual Funds are a smart way to invest in gold! Know how you can invest and what the benefits are?

People in India have a centuries-old relationship with gold. It is not just a metal, but has been a symbol of security, prosperity and tradition. But in today's digital age, the way of investing in gold has also changed. Now you do not have to worry about the purity of gold, security of locker or making charges. There is a smart and easy option for this - Gold Mutual Funds. These funds not only give you the benefits of investing in gold, but also save you from the hassles of buying physical gold. If you also want to invest in gold but do not know where to start, then understand all the things related to Gold Mutual Fund here.

What are Gold Mutual Funds?

Gold Mutual Funds are a type of 'Fund of Funds'. This means that these funds do not invest their money directly in physical gold, but in Gold ETFs (Exchange Traded Funds). Gold ETFs are schemes that invest in physical gold and are listed on the stock exchange. So when you invest money in a gold mutual fund, your fund manager buys units of the gold ETF with that money. In this way, the value of your investment fluctuates with the prices of gold, and you get the benefit of investing in gold.

5 big benefits of investing in gold mutual funds

Power of SIP

This is its biggest advantage. You cannot buy physical gold through SIP, but you can start investing in gold mutual funds with a small amount of just ₹ 500 or ₹ 1000 per month. This does not put a lump sum burden on you and you can create a large fund in the long term.

No tension of purity and security

When you invest in digital gold, you get the assurance of investing in 24 carat gold of 99.5% purity. Also, there is no fear of storing it, getting stolen or lost, because all this happens in digital form.

High Liquidity

You can buy or sell these funds on any business day. The money comes directly to your bank account in a few days. You do not need to go to any jeweler or bargain.

Demat account is not necessary

It is mandatory to have a demat account to invest in gold ETF, but you do not need a demat account to invest in gold mutual funds. You can easily invest through the website or app of any fund house.

No Making Charge

On buying physical gold, you have to pay 5% to 15% making charge, which is a kind of loss. There is no such charge in gold mutual funds, due to which all your money is spent in the growth of gold.

Keep these things in mind before investing

Expense Ratio

The fund house charges a small fee to manage the fund, which is called expense ratio. It usually ranges from 0.5% to 1% annually.

Tracking Error

Since these funds invest in gold ETFs, there may be a slight difference between their returns and the returns of physical gold, which is called tracking error.

Complete Mathematics of Tax

The tax rules on selling digital gold are exactly the same as those on selling jewelry or gold coins. This depends on how long you have held the gold. Returns earned from gold held for 24 months or more are called Long Term Capital Gains; returns earned from gold held for less than this period are called Short Term Capital Gains (STCG). LTCG on gold is taxed at 12.5%, plus cess. In the case of STCG, tax is levied as per your income slab.

How to invest in gold mutual funds? (Step-by-Step Guide)

Complete KYC: If you are investing in mutual funds for the first time, you will have to complete your KYC (Know Your Customer). This is done online with PAN card and Aadhaar card.

Choose a fund house: Choose any reputed asset management company (AMC) like SBI, HDFC, ICICI Prudential etc.

Choose a gold fund from that AMC and see that its expense ratio is low.

Decide whether you want to invest a lump sum amount or invest a little every month through SIP.

Complete the investment process through the fund house's website, mobile app or any mutual fund platform.

FAQs

1. What is better between gold mutual funds and gold ETFs?

If you have a demat account, you can choose either of the two. If you do not have a demat account or want to invest through SIP, then gold mutual funds are a better option for you.

2. Is investing in gold mutual funds safe?

Yes, these funds are regulated by SEBI, so they are safe. However, they have market risk as their price fluctuates with the price of gold.

3. What is the minimum investment you can make in gold funds?

You can start investing in most gold funds with a monthly SIP of ₹500 or ₹1000.

4. Is the money received from gold funds tax free?

No, it is not tax free. You have to pay short term or long term capital gains tax on the profits, as mentioned above.