Indians value gold as an asset that brings security and stability in difficult times, and gold funds can help them experience the same benefits of traditional gold investments while also opening up new market opportunities. With gold funds, you are able to invest in this traditional asset without worrying about the cost or inconvenience of storage and maintenance that come with buying physical gold.
These funds invest in various forms of gold. These can include stocks of gold mining companies, gold-producing and distributing syndicates, or even physical gold. You can invest in gold funds online through Exchange-Traded Funds (ETFs), mutual funds, Sovereign Gold Bonds (SGBs), and digital gold and buy or sell units at market-linked prices.
Read on to learn more about how adding gold funds to your portfolio could be the key to achieving strategic financial growth.
- Hedge against inflation market volatility
One of the key benefits of investing in gold funds is that they can help you hedge against inflation and market volatility. This means that in times of economic uncertainty – such as pandemics or recessions – gold funds have the capability to protect your investments.
Also, when it comes to building a well-diversified mutual fund portfolio, adding gold funds can provide a layer of risk management that other asset classes cannot. Gold funds exhibit a low correlation with equity and bond prices and, therefore, can mitigate risks of market fluctuations and currency depreciation in your portfolio.
- Utility value
Gold has been a reliable asset for centuries, with an underlying utility value due to the consistent demand for it in various industries. As an investor, you can potentially benefit from these characteristics of gold by investing in gold-backed funds and get an edge in terms of portfolio diversification and risk management.
It is noteworthy to mention that, unlike most other assets, gold does not devalue much over time, meaning that if you invest correctly, its intrinsic value may remain constant for years.
- You can start small with an SIP in gold mutual funds
Mutual funds offer convenient ways to buy gold funds and invest in the companies trading in the gold industry. And since there is an inverse relationship between gold prices and the stock market, your long-term returns can be relatively less volatile.
You can further choose to invest in gold mutual funds through an SIP (Systematic Investment Plan), which lets you customise your investment amount and frequency according to your financial goals and risk appetite. You can even enable the auto-pay feature that helps you automate your SIP instalments and discipline your investing. Based on your instruction, the fixed amount will be deducted from your bank account at the specified date.
In a nutshell
While gold funds can add a new dimension to your portfolio and can offer potential benefits, like any other investment, they should be analysed and considered carefully. As a responsible investor, you must consider your investment goals, investment horizon, risk tolerance, current finances, related charges, and expenses before investing in gold funds.
Additionally, it is advisable to rebalance your investments once in six months or a year to maintain an ideal balance within your overall portfolio.
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