Best Gold Mutual Funds To Invest in India 2024 (2024)

A Gold Fund is a type of Mutual Fund that primarily invests in a Gold Exchange Traded Fund (Gold ETF) or equity stocks of companies engaged primarily in mining, refining, or marketing of gold and/or gold products. Gold Funds in India operate using a fund of fund structure and the underlying assets for this mutual fund is physical gold. So, any increase or decrease in the price of physical gold leads to a change in the value of Gold Fund investments.

You can invest in Gold both in its physical form and in its digital form. Gold Funds are a type of digital gold investment that provides various advantages over investments in physical gold. Some of these advantages are:

• Minimal Storage Costs: Physical gold needs to be stored in secure vaults and lockers to ensure that it is not stolen. This is not the case with Gold Fund investments, which are securely stored digitally in your investment account or Demat account post-acquisition. What's more unlike vaults and lockers, there is only a minimal cost in the form of expense ratio for maintaining your investments no matter how large your digital gold holdings are.
• Low Cost of Acquisition: Purchasing physical gold features a number of charges beyond the actual cost of gold. These charges can include making charges for jewelry, customs duty, GST, etc. Such charges are not applicable to Gold Funds and the only cost you need to pay is the expense ratio of the fund. That's why the cost of investing in Gold Funds is lower than acquiring physical gold.
• Higher Liquidity: Buying and selling physical gold can be a cumbersome process. Additionally, there is no guarantee that you will get fair market value for your physical gold in an emergency. This is not the case with units of Gold Funds which can be easily purchased and redeemed from the Asset Management Company or via the stock market.
• No Purity Concerns: There are often purity concerns with physical gold, especially when purchased in the form of jewelry. This is not the case with Gold Mutual Funds because the AMC will ensure the purity of the gold being used as security to issue Gold Fund units to investors.

There are a few key things to consider when investing in Gold Mutual Funds:

• Fund Management Fees: Gold Funds in India follow a fund of fund structure and primarily invest in Gold Exchange Traded Funds (ETFs). This structure has a slightly higher expense ratio as compared to making direct investment in Gold ETF. But this expense ratio is still significantly lower than securely storing physical gold.
• Asset Allocation Considerations: You must bear in mind that gold as an asset class is best suited to diversify an Equity-heavy portfolio. This is because Gold and Equity are negatively correlated i.e. when Equities are down, Gold rises whereas when Equity is up, Gold drops. So Gold Funds cannot be the only investment in your portfolio and you also have to allocate your investments to other asset classes like Equity, Debt, etc. depending on your risk tolerance.
• Taxation: Gold Mutual Funds are subject to the capital gains taxation rules of Debt Mutual Funds. So, short term capital gains (STCG) is applicable to Gold Fund units that are held for 3 years or less prior to redemption. These are taxed as per the income tax slab rate of the investor. If units of Gold Funds are held for over 3 years prior to redemption, long term capital gains (LTCG) taxation rules are applicable. The LTCG rate for Gold Funds is 20% with indexation.

A demat or trading account is not mandatory to purchase units of Gold Funds. All you need is a free investment account with ET Money to start investing in direct plans of Gold Mutual Funds. Alternatively, if you do not want to purchase units of Gold Funds directly from the Asset Management Company, you can use a demat and trading account to purchase listed Gold Fund units from the stock market.