Gold – One word and you start imagining an asset that is unique, reliable and precious! Gold is one of the few asset classes that is evergreen. When you think of investing in gold, then you can do one of the two things:
- Offline purchase: Buying physical gold in the form of ornaments and bars.
- Online purchase: Buying gold online and by online, we don’t mean purchasing gold ornaments or bars from online websites. We mean buying gold mutual funds or gold ETF.
Going out to buy physical gold is a comprehensive process. Although buying gold ornaments is considered auspicious and popular in the Indian culture, you can’t overlook the sense of responsibility that comes along with it. You need to be utmost careful that you store it safely in the locker. In addition to that, in this case, paying the making charges for the asset is also an additional expense you have to bear.
In contrast to this, investing in gold mutual funds is a quite convenient task. The whole process of choosing the perfect gold ornament, ensuring it’s safety and even paying the extra making charges is evaded. Gold ETFs still require you to have a Demat account but in case of gold mutual funds, you don’t need a Demat account either. Especially, on looking at the current economic times, it is a great idea to stay indoor (rather than go out to physically purchase) and invest in gold mutual funds. With the Covid crisis taking over the world, below are the reasons why you should invest in gold mutual funds these summers:
Ever heard of portfolio insurance?
If you haven’t heard of it yet, you should definitely hear about it now. Covid crisis is making people panic about their investments all across the globe, following which they are impulsively selling and buying funds. In order to rebuild what’s lost, the first thing you need to do is – STOP!
Stop panicking about your investments in the markets. It’s a phase that you need to ride out. If you panic buy or sell, you will convert the expected losses into real time losses thereby losing any chance of making back the money. The second thing you should do is – INSURE YOUR PORTFOLIO.
Protecting your portfolio against market volatility is not a difficult process. When you start your asset allocation, you are always advised to have a diversified portfolio. Having different types of funds in your portfolio, ensures that the losses caused by one, are counteracted by the gains in another. As such, equities fall in value during market turmoil because people tend to withdraw their investments from the market in fear and invest in safer securities like debt and gold funds.
Gold mutual funds are a great way to protect your portfolio against market volatility. In fact, today is a great time to start investing in gold mutual funds if you haven’t already done it.
Table of Content
Top 5 Reasons to Invest in Gold Mutual Funds
1. Negative correlation: The relationship between gold mutual funds and other asset classes is inverse. When the value of other classes is high, the value of gold is low. However, this means that during a crisis, when the value of other major asset classes is falling, gold becomes a tool to establish balance in the portfolio.
Historical data shows that when equities fail to perform, investments in gold mutual funds do quite well. This gives an investor the opportunity to gain from one, when the other is performing poorly.
2. Beating Inflation: It’s no surprise that gold works like a hedge against inflation. An investment hedge is an investment that increases in value over a period of time. Gold, as a safe investment instrument reflects the sentiment of the people investing in the market
The rise in the price of gold mutual funds will balance out the inflation rate. As the price of gold and inflation rate rises simultaneously, gold mutual funds are a great way to supersede inflation.
3. Performs during global turmoil and crisis: Amid global turmoils like the Coronavirus crisis, market crashing, and other things, equity and bonds are performing poorly. On the contrary, gold funds are performing well even during such uncertain times.
The key reason for that is during politically charged or otherwise uncertain times the faith of people in the government falls. Following this, the price of the historic metal tends to rise. During times of calm, the price of gold tends to fall as people are relaxed and don’t feel the need to accumulate the precious metal.
4. Supply and demand constraints: Gold mines are obviously limited. This means that the supply of Gold is limited, however, the demand for gold is always high. Especially in countries like India and China where gold is used to make ornaments, the demand of gold never falls.
Gold is a noble metal and is thus scarcely available. Gold mining companies have not been able to add more quantity to the demand-supply cycle. This high demand and low supply cycle ensures that the price of gold stays elevated all the time.
5. Relationship between gold and US dollar: An inverse relationship exists between gold and the US dollar. When the value of the US dollar rises, the value of gold falls and vice-versa. Wondering how that works? Basically, when the value of the US dollar increases in comparison to other currencies around the world, the price of gold tends to fall in U.S.D terms. It is because with high gold prices, there tend to be fewer buyers, in other words, the demand falls.
All this happens because the gold price in US dollars is the worldwide accepted benchmark. When the value of the US dollar lowers, it means that gold becomes cheaper in other currencies. As the demand of gold rises, the value of gold rises simultaneously.
Best Gold Mutual Funds 2020
Here’s a list of best gold mutual funds to invest in 2020:
1.Gold Mutual Funds – Nippon India Gold Savings Fund – Direct Plan – Growth
Nippon India Gold savings fund seeks to provide returns that closely correspond to returns provided by Reliance Gold Exchange Traded Fund (RGETF). You can start an SIP in this with Rs. 500. This fund is managed by Mehul Dama since November 2018. The fund has generated over 9% returns in the past 5 years.
2. Gold Mutual Funds – ICICI Prudential Regular Gold Savings Fund(FOF) – Direct Plan – Growth
|Scheme||AUM in Cr.||NAV in Rs||1 year||3 year||5 year||Inception|
Nippon India Gold Savings Fund
ICICI Prudential Regular Gold Savings Fund(FOF)