Investing Money in Gold Funds? Good Idea or Bad?

Gold climbed 16 percent in the first three months of 2016, its biggest quarterly rise since 1986, according to an article published in Zee News in March 2016. Drop in equities have boosted the appeal for the yellow metal as an alternative investment option. Gold has always enjoyed a high regard in the Indian portfolio, mainly due to its track record of positive returns. Traditionally, people invested in this asset only in its physical form. However, over time, other option such as mutual fund, ETF and E-gold have emerged.

Each way of investing in gold has its own pros and cons. There are mutual funds that specifically invest in this asset. These are gold mutual fund, which are basically funds that invest in gold ETFs and other funds that park their corpus in mining companies and those involved in the trade of this precious metal. These are actively managed by professionals. On the other hand, ETFs are much like trading shares on a stock exchange. One gram of the yellow metal is treated as a unit for trading purposes.

Pros

Given below are some advantages of investing in gold through MF.

• Purity of the metal does not need to be validated.
  
• Can be redeemed easily and the redemption proceeds are transferred to the account of the investor within 4 days.
  
• You can invest with as less as Rs. 1,000. This is mainly possible because like any other MF, you can park your money through SIP.
  
• Investing through an SIP, lets you benefits through rupee cost averaging when gold prices fluctuate.
  
• Simple rules for investment, as you can start an SIP by filling the required form and adhering to the KYC rules.
  
• You can park your surplus money both through online and offline module.
  
• No wealth tax.
  
• No Demat account needed.
  

Cons

Although gold funds have various pros, there are some aspects you need to consider: 

• Long-term and short term capital gains tax may apply.
  
• There are expense charges, which include annual management charges.