Best Gold Mutual Funds in India

What are gold mutual funds?

Gold mutual funds are types of mutual funds that invest in the equity stocks of gold-producing companies, physical gold, and Gold Exchange Trade Funds (ETFs). They are a convenient and flexible way of investing in gold without the need to purchase the commodity in its physical form. 

Gold funds in India operate on a fund-on-fund structure, where the underlying asset of the mutual fund is physical gold. As a result, any change in the price of gold leads to a change in the value of gold fund investments.

Benefits of a Gold Fund

Gold funds offer several advantages to its investors, such as:
 

• Inflation hedge: Gold is often seen as a safe investment during inflationary periods, helping you preserve purchasing power.

• Higher liquidity: Buying and selling physical gold can be tedious and often does not guarantee fair market value when selling gold during an emergency. In contrast, gold funds can be easily purchased in digital form and redeemed easily from the AMC, offering high liquidity.

• Minimal storage cost: Physical gold involves hassles with storage and security. Gold mutual funds, on the other hand, can be stored digitally in a Demat account or your investment account, reducing storage costs.

• Low cost of acquisition: Buying physical gold involves various additional fees in addition to the actual cost of gold. These can include making charges on jewellery, GST, custom duty, etc. These charges do not apply to Gold funds. The only extra cost you need to incur is the expense ratio of the fund. This brings down the investment cost as compared to physical gold.

How to Invest in Gold Funds?

Now that you know about the benefits of investing in gold, let’s talk about the more important subject, i.e., “How to invest in Gold?” Apart from the traditional method of buying jewelry, gold coins, bars, billions, or artifacts, you can now invest in gold online through several modern methods. For example, you can invest in gold Exchange-Traded Funds (Gold ETFs) or gold mutual funds. Investing in gold ETFs is equivalent to buying physical gold, albeit in the digital form.

Below are the different methods in which you can invest in gold in India:

• Buying physical gold (jewelry, gold coin, gold bar, gold biscuit, etc.)

• Investing in gold ETFs through a Demat account

• Investing in gold mutual funds

• Buying sovereign gold bonds

   

  Comparison Between Different Gold Investment Methodologies

   

  Physical Gold	Gold ETFs	Gold Mutual Funds	Sovereign Gold Bonds
  Buy gold in the physical form.	Buy ETFs that invest in gold bullion.	Buy mutual funds that invest in gold bullion or gold mining companies.	Buy sovereign gold bonds issued by the Reserve Bank of India.
  No Demat account is required.	A Demat account is required.	No Demat account is required.	No Demat account is required.
  You have to pay only the price of the gold and the making charges (if any).	You can invest via a stockbroker that can levy asset management charges and brokerage fees.	A fund management charge is levied by the Asset Management Company.	You’re required to pay the price of the bond and nothing else.
  Fluctuations in gold prices may affect the value of physical gold.	Market fluctuations may impact your investments.	Changes in gold prices do not affect the value of gold mutual funds.	Safer investment avenue that provides assured returns.
  No paperwork is required.	Paperwork is required.	Paperwork is required.	Minimum paperwork is required.

Documents Required to Invest in Gold

• No documents are required to purchase physical gold worth less than Rs. 2 lakhs

• For purchasing gold worth Rs 2 lakhs or more, you may have to submit your PAN card to the seller

• For investing in Gold ETFs, you will need to have a Demat account

• For investing in gold mutual funds or sovereign gold bonds, you will need to submit your KYC documents, including your PAN card, Aadhaar card, Voter ID card, and/or Passport

Benefits of Investing in Gold

Gold mutual funds offer a smart and hassle-free way to invest in gold. Here are some key advantages-
 

• Convenience: Unlike physical gold, gold mutual funds don’t require storage or insurance. Investors can hold gold assets without worrying about security or logistical challenges.
• Regulated & Transparent: Regulated by SEBI, gold funds offer fair pricing based on the market value of gold. Investors can track their holdings easily and be assured of accurate valuations.
• Portfolio Diversification: Gold acts as a hedge against inflation and market fluctuations. Since it moves differently from stocks and bonds, adding gold funds to your portfolio helps reduce overall risk.
• Cost-Effective Investment: Buying gold funds is more affordable than purchasing physical gold, as it eliminates making charges, storage costs, and insurance expenses. Lower transaction fees enhance long-term returns.
• Quick & Easy Liquidity: Gold mutual funds can be easily bought or sold, ensuring quick access to funds when needed. This makes them a reliable option, especially during financial uncertainties.
• Tax Benefits: Some gold funds may offer tax advantages depending on regulations, making them a tax-efficient investment option.
   

With these benefits, gold mutual funds provide a secure, flexible, and cost-effective way to invest in gold without the complexities of physical ownership.

Things to consider before investing in Gold Mutual Funds

Here are a few things that you must consider when investing in gold mutual funds-
 

• Fund management fees: Gold funds in India typically invest in Gold ETFs and follow a fund-on-fund structure. This leads to a slightly higher expense ratio than other mutual funds, but it is still lower than buying physical gold.
  
• Taxation: Gold mutual funds are subject to capital gain taxation rules applicable to debt mutual funds. This means short-term capital gains (STCG) apply to gold fund units held and redeemed in 3 years or less and taxed at the investor’s tax slab rate. Similarly, gold fund units held for over 3 years attract long-term capital gains on redemption and are taxed at 20%.
• Financial Goals: Investors must define their financial goals and expected returns. Your investment horizon plays a key role in selecting gold mutual funds that align with your goals and timelines.
• Diversification of Portfolio: Gold mutual funds are a strategic way to diversify your portfolio. They act as a cushion during market volatility, helping to balance risk when equity markets fluctuate.
• Past Performance: Analyse the historical performance of different gold funds. While past returns don’t guarantee future results, consistent performance can indicate a well-managed fund worth considering.

How to Start Investing in Gold Funds with Tata Moneyfy?

Tata Moneyfy is here to guide you on your investment journey. Here's how you can invest in the best gold mutual funds through Tata Moneyfy:
 

• Step 1: Download the Tata Moneyfy app and create your free investment account by completing your KYC process.
• Step 2: Once your account is ready, search for Gold Funds.
• Step 3: Review and compare different Gold Funds based on key factors like past performance, volatility, downside capture ratio, AUM, expense ratio, and underlying assets.
• Step 4:  Choose to invest via SIP (Systematic Investment Plan) or lump sum.
• Step 5: Enter the amount you wish to and set up payments via UPI, net banking, NEFT, RTGS, etc.