Gold mutual funds are ‘funds of funds’ (FOF) mutual funds that invest in other types of funds.
Gold mutual funds invest majorly in the gold ETFs (exchange-traded funds) like Kotak gold mutual fund invests 98% in the Kotak Gold ETFs.
Here are the details of other gold mutual funds
| Gold Mutual Fund | ETF Holding |
| HDFC Gold Fund | 100% |
| Nippon India Gold Savings Fund | 100% |
| SBI Gold Fund | 100% |
| Axis Gold fund | 98.2% |
| Aditya Birla Sun Life Gold Fund | 98.1% |
As per the definition, gold mutual funds invest in gold-related assets such as gold ETFs, gold mining stocks, and physical gold.
In reality, gold mutual funds are similar to gold ETFs which carry additional expense ratios. You would get a lesser return on gold mutual funds as compared to gold ETFs due to the expense ratio.
| Gold MF (1 Y) | Gold ETF (1 Y) | Gold MF (3 Y) | Gold ETF (3 Y) | |
| Kotak | 15.3% | 15.38% | 8.6% | 10.13% |
You need to pay an exit load of 1% for gold mutual funds in case you redeem the mutual funds within 1 year.
Exit load is not applicable on the Gold ETFs. You can go through my How to invest in gold in India article where I have discussed all gold-based investments available in the market with their pros and cons.
Benefits of Gold Mutual Fund
1. High Liquidity
Gold mutual funds are highly liquid investments. You can easily buy and sell their units at any time. The Gold mutual funds are adjusted after the market closing
2. Cost-effective investment option
Investing in physical gold requires a lot of investment as you have to bear the cost of storage, and making charges. Gold mutual funds, on the other hand, are a cost-effective investment option as compared to physical gold.
3. Professional Management of Investment
Gold mutual funds are managed by professional fund managers. The fund managers have expertise in the gold market and track the gold prices to make investment decisions accordingly.
4. Hedge against Inflation
Gold is considered a hedge against inflation as it has historically maintained its value even during times of high inflation. Gold mutual funds invest in gold assets, which provide a hedge against inflation. Investing in gold mutual funds can help you protect your investments against inflation and currency fluctuations.
Top 10 Gold Mutual Funds in India
I have listed down the top 10 gold mutual funds based on their past return
| Fund | 1 Year CAGR | 3 Year CAGR |
| Axis Gold Fund | 16.7% | 10.1% |
| HDFC Gold Fund | 16.2% | 9.8% |
| Quantum Gold Fund | 16.2% | 9.8% |
| Nippon India Gold Savings Fund | 16% | 9.7% |
| Invesco India Gold Fund | 15.9% | 10.5% |
| IDBI Gold Fund | 15.8% | 9.6% |
| SBI Gold Fund | 15.7% | 8.2% |
| Aditya Birla Sun Life Gold Fund | 15.7% | 9.5% |
| ICICI Prudential Gold Savings Fund | 15.6% | 9.1% |
| Kotak Gold Fund | 15.3 | 8.6% |
How to Analyse Gold Mutual Funds to Find the Best One
You can analyse the gold funds before investing in a gold mutual fund on the basis of
1. Past Performance of the Gold Mutual Fund
You must examine the historical performance of the gold mutual fund to understand its potential for growth and returns. This information is available on the mutual fund’s website, financial news portals, or through a financial advisor. You can examine the mutual fund’s performance over the short-term and long-term, compare it with industry benchmarks, and assess its performance during various market conditions.
2. Expense Ratio of the Mutual Fund
The expense ratio is the cost of managing a mutual fund, which includes management fees, administrative expenses, and other operational costs. You must consider the expense ratio of the mutual fund, as it can significantly impact its overall returns. A higher expense ratio can reduce the overall returns of the mutual fund, whereas a lower expense ratio can result in higher returns.
3. Minimum Investment Amount Required
You must consider the minimum investment amount required to invest in the mutual fund. Some mutual funds may require a minimum investment of Rs 500 while others may require a higher minimum investment amount. You must ensure that you can meet the minimum investment amount before investing in the mutual fund.
4. Exit Load
A 1% exit load is applicable if you redeem your mutual funds before 1 year. So if you are going to redeem your mutual funds within 1 year then you should invest in gold ETFs to avoid the exit load.
Step-by-Step Process to Invest in Gold Mutual Fund
Step 1 – Choose an Investment Platform
Open an account with a mutual fund investment company. You can directly invest through the fund house like HDFC in the case of the HDFC gold fund.
There are many other platforms that offer a large number of gold mutual funds from different fund houses. Stock brokers like Zerodha also provide mutual fund investment services.
A few popular platforms are
- Zerodha Coin
- Groww
- Scripbox
- FundsIndia
- IND Money
If you already have a demat & trading account, then check if he offers investment in gold mutual funds.
Step 2 – Pick the right gold fund
Pick the right gold mutual fund in which you want to invest. You can compare the gold funds based on their holdings, past performance, expense ratio and exit load.
Search the fund on the platform.
Step 3 – Place your order
The last step is to place the order.
Click on buy and enter your investment amount. You can also start SIP for gold mutual funds. Click on SIP, and enter the details like
- Initial investment,
- Instalment amount,
- Frequency of investment like monthly or quarterly
- Instalment date
Click on Create SIP.
How to Sell Gold Mutual Fund
You can sell the units through your trading account with the mutual fund company or online investment platform.
Step 1- Login into your account
Step 2 – Go to your holdings section
Step 3 – Select the gold fund that you want to redeem. Click on Withdraw or Redeem option.
Step 4 – Fill in the amount that you want to withdraw and click on ‘Redeem’. You can redeem the full amount or partial amount.
Step 5 – Click on continue and your gold fund units will be redeemed from your account.
You can use the above-mentioned process to invest in mutual funds through Zerodha coin. It could be a gold fund or any other fund, the process would be similar.
Tax Implications on Gold Mutual Funds in India
- Short-term capital gains tax – If you sell your gold mutual funds within 3 years of purchase, the gains are considered short-term capital gains (STCG). A fixed 15% income tax is charged on the STCG irrespective of your income slabs.
- Long-term capital gains tax – If you redeem your gold mutual funds after 3 years of purchase, the gains are considered long-term capital gains (LTCG). Long-term capital gain amount of up to INR 1 lakh is tax-deductible, and a tax of 10% would be levied on amounts greater than 1 lakh.
Drawbacks of Gold Mutual Fund
- Gold mutual funds carry an expense ratio which can reduce the overall returns.
- Exit load if you redeem within 1 year
- You wouldn’t get any interest income like sovereign gold bonds
Best Alternative to Gold Mutual Fund to Invest in Gold:
The best alternative to Gold mutual funds is sovereign gold bonds because of the higher returns. You can invest in other gold investments like physical gold, Gold ETFs or you can invest in digital gold.
Let’s compare all the options
| Physical Gold | SGB | Gold ETF | Gold MF | Digital Gold | |
| Investment limits | Min – No Max – No | Min – 1 gram Max – 4 kg | Min – 1 gram Max – No | Min – Rs 1000 Max – No | Min – No Max – No |
| Cost | Making charges | No | Upto 1% | Upto 2.5% | Upto 3% |
| Lock in period | No | 8 years | No | No | No |
| Returns | Gold returns – making charges | 2.5% p.a + Gold returns | Gold returns – cost | Performace of the underlying asset – cost | Gold performance – cost |
| Tradability | No | Tradable on Exchange | Tradable on Exchange | Tradable on Exchange | No |
Conclusion
You should invest a maximum of 10% to 15% of your investment portfolio in all kinds of gold investments including gold jewellery, coins, and SGB.
Sovereign Gold Bonds are my favourite because of the higher return but 8 year lock-in period can be a concern for you. If you want to invest in gold for a shorter period of time then gold ETFs are the best option.
You can diversify your rest portfolio with stocks and mutual funds for better overall returns on your investments.
FAQS
Gold mutual funds are investment funds that pool money from multiple investors and invest it in gold-related assets, such as physical gold or gold mining stocks.
You can invest in gold mutual funds in India through a variety of channels, including online platforms, brokerage firms, or directly through the asset management company (AMC).
The minimum investment amount for gold mutual funds in India can vary depending on the AMC and the specific fund. It typically ranges from Rs. 500 to Rs. 5,000.
Yes, you can invest in gold mutual funds through SIP (Systematic Investment Plan), which allows you to invest a fixed amount of money at regular intervals.
The tax implications of investing in gold mutual funds in India are the same as investing in any other mutual fund. Long-term capital gains (LTCG) tax of 10% with indexation applies if held for more than 3 years. Short-term capital gains (STCG) tax of 15% will be applicable for less than 3 years.
The price of gold mutual funds is determined by the net asset value (NAV) of the fund, which is calculated as the total value of the fund’s assets minus its liabilities divided by the number of units outstanding.
Some important factors to consider before investing in gold mutual funds in India include the fund’s performance history, expense ratio, investment objective, and the AMC’s reputation.
Yes, you can redeem your investment in gold mutual funds at any time, subject to exit load and other terms and conditions of the fund.
Investing in gold mutual funds allows you to gain exposure to the gold market without the hassle of storing physical gold. However, investing in physical gold may offer more flexibility in terms of buying and selling.
Yes, you can switch between different gold mutual funds, subject to the terms and conditions of the fund and the AMC. Some AMCs may charge a switching fee for this.
