Gold funds have become one of the most sought after mutual fund schemes for a wide number of reasons. Mutual funds can consider adding gold funds to their portfolio for diversification. One must always have a right mix different asset class to allow their investment portfolio of over come market volatility. Indians are naturally drawn towards gold. But now because of gold funds, they can invest in this precious yellow metal in digital form and earn capital appreciation without having to deal with the hassles of safeguarding physical gold.
Here are top reasons to add gold funds to your investment portfolio:
Acts as a hedge against falling markets
In the previous year when the COVID 19 pandemic had created a negative impact on the stock market, gold funds were at their peak, some even offering 80 percent annual returns. This proves that gold funds can provide the necessary cushion when the markets are underperforming and reduce your portfolio’s overall investment risk.
Better than gold ETFs
Although several gold funds replicate the performance of gold ETFs, investing in gold fund is better because of the SIP investment option. Gold funds offer the option of starting a monthly SIP whereas gold ETFs do not have that option. A Systematic Investment Plan is an ideal investment choice for anyone who wishes to invest in gold funds for the long run. What happens when you start a monthly SIP is that every month on a fixed date, the SIP sum that you choose is debited from your savings account and electronically transferred to gold fund. You will be allotted units in quantum with the investment amount and depending on the fund’s current NAV. To invest in gold ETFs, you need a demat account, but you need not have a demat account to invest in gold funds.
Don’t need to worry about security
When you own gold in the form of jewelry or any other physical form you are always concern about its security. You cannot keep gold in great quantities at home as there is a fear of theft and also a threat to your family. To store gold in bank safety vaults you have to pay an annual fee for owning a locker to your bank. But when you invest in a gold fund, you do not have to worry about any of the aforementioned concerns. That’s because when you buy gold fund units, they are stored in digital form in your mutual fund account. You do not have to worry about your gold’s security when you by it in digital form.
No need to worry about authenticity
Most gold funds invest in gold ETFs which invest their corpus in gold bullion of 99.5 percent purity. Hence, investors do not have to worry about the gold’s authenticity while investing in gold funds. But when to purchase gold from a vendor you are always concerned about its authenticity. Also, the price of gold may vary from vendor to vendor. If there are any fluctuations in the international gold rates, this will impact on the gold ETF and in turn, impact a gold fund’s NAV.
Gold funds make an ideal investment option for anyone seeking diversification. Most mutual fund advisors suggest investors do not depend on any one asset class for earning capital appreciation. That’s because it is less likely for all the asset classes to move in tandem all at once. Gold funds can also be considered as a long term investment and investors can target their life’s long term financial goals by investing in gold funds via SIP till their investment objective is accomplished.