For generations, gold has held a special place in every Indian household. From weddings to festivals, and even during financial emergencies, gold has always been more than just a metal. It represents tradition, security, and status.
But in today’s digital age, the way people invest in gold has changed. While physical gold still holds emotional value, modern investors are now shifting to Gold Mutual Funds. These funds make it possible to invest in gold without worrying about purity, storage, or theft. And more importantly, they offer flexibility, even for those with limited savings.
Let’s break down what gold mutual funds are, how they work, their benefits, and what to keep in mind before investing.
What Exactly Are Gold Mutual Funds?
Gold Mutual Funds are not directly invested in physical gold. Instead, they put money into Gold Exchange Traded Funds (Gold ETFs), which themselves hold 99.5% pure 24-carat physical gold. These ETFs are listed and traded on stock exchanges.
So, when you invest in a Gold Mutual Fund, you’re indirectly investing in gold through ETFs. The fund manager handles the investments, and the value of your mutual fund units moves in line with the price of gold in the market
5 Key Benefits of Investing in Gold Mutual Funds
✅ Start Small with the SIP Option
Unlike physical gold, where you need a lump sum to buy even a small amount, Gold Mutual Funds allow you to start with as little as ₹500 or ₹1000 per month through SIP (Systematic Investment Plan). This makes gold investing accessible even for young or small investors.
✅ No Worries About Purity or Theft
Gold Mutual Funds offer digital investment in 24-carat gold with high purity. Since there’s no physical gold involved, there’s no fear of theft, loss, or storage-related issues.
✅ Easy to Buy and Sell
You can redeem or invest in Gold Mutual Funds on any business day. The process is simple and digital, and the sale proceeds are directly credited to your bank account in a few working days.
✅ No Need for Demat Account
You need a demat account to invest in Gold ETFs, but not for Gold Mutual Funds. You can invest using any mutual fund app or directly through AMC websites, making it more convenient for regular investors.
✅ No Making Charges
Physical gold comes with making charges ranging from 5% to 15%. Gold Mutual Funds have no such charges. Every rupee you invest goes toward your gold exposure, making it cost-effective.
Few Things to Consider Before Investing
📌 Expense Ratio
Every mutual fund charges a small fee to manage your investment. This is known as the Expense Ratio and it usually ranges from 0.5% to 1% per year. While it’s small, it still affects your final return, so compare this before choosing a fund.
📌 Tracking Error
Since Gold Mutual Funds invest in Gold ETFs and not directly in gold, there might be a slight difference in actual returns compared to the real gold price. This is called a tracking error, and lower is always better.
📌 Tax on Returns
Profits from selling Gold Mutual Funds are not tax-free.
- If you sell your investment within 36 months, it is considered Short-Term Capital Gain (STCG) and taxed as per your income slab.
- If held for more than 36 months, it becomes Long-Term Capital Gain (LTCG) and is taxed at 20% with indexation benefit.
You should always consider this before redeeming your units.
Step-by-Step Guide to Start Investing in Gold Mutual Funds
- Complete Your KYC:
If you’re a first-time mutual fund investor, complete your Know Your Customer (KYC) process online using your Aadhaar and PAN card. - Choose a Trusted Fund House:
Pick a reliable AMC like SBI Mutual Fund, HDFC Mutual Fund, ICICI Prudential, Nippon India, etc. - Select the Gold Fund Scheme:
Look at factors like the fund’s past performance, expense ratio, tracking error, and fund manager experience. - Decide Between SIP and Lump Sum:
If you’re just starting, go with SIP to build wealth over time. If you have spare cash, you can invest a lump sum too. - Use Apps or Websites to Invest:
Most mutual fund platforms and AMC apps allow quick and easy investing. No paperwork is needed once KYC is done.
How Gold Mutual Funds Compare with Gold ETFs
| Feature | Gold Mutual Funds | Gold ETFs |
| Demat Account | Not required | Mandatory |
| SIP Option | Available | Not available |
| Investment Process | Through MF apps or websites | Through stockbrokers |
| Liquidity | High | High |
| Cost | Slightly higher expense | Lower expense ratio |
If you are a retail investor without a demat account or prefer SIPs, Gold Mutual Funds are a better choice.
Why Are Indians Choosing Gold Mutual Funds Today?
More and more Indians are looking at gold as an asset, not just jewellery. With rising digital awareness and ease of online investing, Gold Mutual Funds are becoming the go-to option for people who want to add gold to their portfolio without buying and storing physical gold.
They offer the same price advantage as physical gold and protect you from making charges, storage stress, and purity issues.
Gold also acts as a hedge against inflation and currency risk, making it ideal in uncertain economic times. When stock markets fall or global uncertainty increases, gold prices often rise, protecting your portfolio.
