Gold funds are open-ended mutual funds. They carry out investments in units of a gold exchange-traded fund (ETF). The prime purpose of these funds is wealth creation by using the potential of physical gold as a valuable commodity. These funds are best for investors with a low-risk appetite.
Benefits
The funds are redeemable on any business day during market hours. However, for selling, the NAV of the day before is taken into account. Once your funds are traded off, the money is generally disbursed within 2-3 working days.
Investing in these funds is also safer than a physical gold investment. You can electronically invest in the funds with safety and avoid the hassle of storing physical gold that can be stolen anytime.
After a few years, if you wish to increase your investments little by little annually, you can go for a step-up SIP. Then you can estimate the returns using an SIP with annual increase calculator.
Gold funds, like any asset class, come with certain risks. These include lower returns than equities and diversification challenges.
However, investors choose these funds not with the motive to gain high returns over a long period but invest with low risk.
By investing in these funds with a dynamic approach, you can diversify your portfolio profitably. Consider allocating a portion of your portfolio towards them. During a market crisis, try to increase this allocation. When the market recovers, you can invest more in other asset classes that seem to perform better. Thus, you must focus on the stability gold funds provide your portfolio with and use them as insurance cover.
To conclude, consider investing in these funds strategically to make the most of their benefits.