Though Indians have always fancied owning gold for various cultural and emotional reasons, it has not been actively considered while working out the asset allocation. It’s time to do so. Today mutual funds offer investors a couple of choices that can eliminate many risks that one has to face while holding physical gold.
Firstly, there are Gold Exchange Traded funds (GETFs). An exchange traded fund with gold as its underlying asset is called Gold ETF. There are many advantages of investing in GETFs. For example, gold storage and other costs are shared with other investors. GETFs allow investment in gold in small denominations thereby allowing retail investors to participate. In the secondary market, the minimum lot is one unit.
Another option is to invest through fund of funds launched by domestic mutual funds to invest in gold mining companies through an international fund. Investing in a scheme like this provides investors access to fund manager’s expertise and active fund management, which is not available in GETFs. Also investing in gold mining companies offer investors the upside opportunity through organic/M&A growth as well as leverage the increasing price of gold. In other words, investors benefit as the profitability of gold mining companies increases with a rise in gold prices.
Ideally, a combination of both i.e. GETF and Gold equity fund would be the right way to invest.
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