Expectations from Gold Mutual Fund Investments
Filed under Mutual Funds
In recent times gold mutual funds have been losing its charm amongst investors. However a gold mutual fund investment can still make money. Gold has been a precious metal for preserving wealth for centuries and today it has been a proven method of preserving value when the national currency was losing value.
It is a trusted investment, especially when world economic circumstances are deteriorating or risky.
Historically, gold has been a safer method of hedging against inflation in the long run. In the present economic scenario in which the economic climate is highly volatile, and inflation is rising, investing in a gold mutual fund assures some kind of stability in the long run.
The Advantages in Investing in a Gold Mutual Fund:
- No hassles of safety
- No resale concerns
- Quality assurance
- No making charges
- More tax efficient in absence of wealth tax and long-term capital gains.
In terms of liquidity this is an excellent tool as even one unit can be bought on the exchange. Further, in the long run, the annualized rate of return is higher for such funds as compared to other monetary funds. Gold in an investor’s portfolio helps in diversifying the total risk of the portfolio.
Gold mutual funds give high returns to investors when things are going well. But when a bear market is in force, these funds can be risky. However, these risks can be minimized by investors if they keep a track of gold mining stocks being overvalued or undervalued in relation to gold bullion. Gold funds usually invest a major part of their assets in shares of gold mining companies rather than in gold bullion itself.
If the investor can recognize when gold mining company shares are selling at undervalued rates, the investor can buy gold funds when they have upside potential and minimum downside risk. Similarly, investors can avoid any downside damage when there is a drop in the gold prices by selling their shares when gold mining stocks reach overvalued levels.
Gold mutual fund investment is a relatively safe way of owning gold stocks and which allows the investor to diversify among other stocks. As portfolio management is done by professionals who know the markets well, the returns are better. Exchange Traded Funds (ETF) have advantages such as lack of making charges of gold, impurity risk, resale hassles, absence of wealth tax and long-term capital gains tax. Experts believe that investors can invest a small part of their portfolio in this fund for the purpose of diversification and hedging.
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