A quick introduction to gold mutual funds
What is a Gold Fund?
A Gold Fund is a mutual fund or ETF (Exchange-Traded Fund) that invests predominantly in gold mining companies or gold stocks. A Gold Fund may also invest in silver, platinum and palladium mining companies, as well as in exploration companies.
Gold Funds have been around for many years now, but until recently there was very little interest from investors. More recently, their popularity has grown significantly – especially among investors who believe that the price of gold will continue to rise because of recent weakness in global economies and currencies. Infact, nowadays just like you can find
information like today gold price in Durgapur or Jaipur for physical gold you can just as easily get information on gold fund prices. This only goes to show how investing in gold funds is rapidly becoming main stream way of investing in gold.
What are the advantages of a Gold Fund?
A Gold Fund offers investors a convenient way to own a diversified portfolio of gold stocks without the hassle of researching individual companies and buying each one. The risk associated with owning several different gold stocks can be reduced by investing in a Gold Fund offering well-researched investments.
Why Should You Invest in Gold Funds?
Investing in Gold Funds is a good idea because they:
- Protect against inflation, as the value of gold appreciates as the price level increases (and vice-versa).
- Are often used as hedging instruments by investors who want to offset the risks of their portfolios. They are also used by investors who have an aversion toward risk and who want to hedge their interest rate sensitivity risk.
- Offer lower costs compared to investing directly in gold (buying and selling physical gold) because there are lower transaction costs, storage costs are not applicable, etc.
- Are tax-efficient because they do not attract any capital gains tax on the sale
What are the risks of investing in a Gold Fund?
- The price of gold fluctuates significantly according to many factors, including supply and demand, currency movements and inflationary expectations. This means the value of an investment in a Gold Fund can go up or down in line with the price of gold. The best way to be prepared for this is by constantly tracking metrics like gold rate today Nalgonda or for any other place before you invest in gold funds or if you have already invested in it. Click here to learn more. This will prepare you for the price fluctuations and help understand them better.
- A Gold Fund is also likely to carry a much higher risk than most other types of mutual funds because it invests mainly in smaller companies which tend to be more volatile than larger firms.
How Does Investing in Gold Funds Work?
Gold funds may invest in stocks of companies engaged in the exploration and production of gold, gold mining companies, or companies that have significant holdings of gold bullion. Some funds may invest in all three categories, while others will only invest in one or two. Investors need to understand what types of investments are included in a fund before they make an investment decision.
Gold funds are a part of various types of funds:
- Sector Funds that specialize solely in the gold mining sector and offer investors a diversified way to gain exposure to this sector;
- Precious Metals Funds that invest not only in gold mining companies but also in other precious metals mining companies such as silver and platinum producers;
- Commodity Funds generally invest in a broad range of commodities including precious metals, energy, and agricultural products;
- Multi-Asset Class Funds that include multiple asset classes such as hard assets (precious metals and industrial metals), energy (oil, natural gas, and coal), agricultural products, soft commodities, real estate, and equities (domestic and foreign stocks);
- Leveraged ETFs use leverage to take either long or short positions in gold bullion with the expectation of gold prices either increasing or decreasing.