Want to invest in gold through mutual funds? Here are the options after Gold FoF curbs
Several mutual fund houses have temporarily stopped accepting fresh investments into gold fund-of-funds (FoFs), leaving investors wondering whether they can continue investing through existing SIPs and what alternatives are available. Here is what investors can do, as reported by ETBureau.
Gold FoFs are mutual fund schemes that invest in Gold ETFs rather than buying physical gold directly. When an investor puts money into a Gold FoF, the fund manager uses that money to purchase units of a Gold ETF which invests in physical gold. As a result, a Gold FoF’s value generally moves in line with gold prices.
Gold FoF offers a simple way to invest in gold through the mutual fund route without needing a demat account. Investors can buy and redeem units like any other mutual fund scheme while gaining exposure to changes in gold prices.
Several fund houses have temporarily stopped accepting fresh investments in Gold FoFs from mid-October which includes fresh lump-sum investments, new SIP registrations and switch-ins, though they differ across schemes.
While fund houses have not disclosed specific reasons behind the move, industry participants believe it may be linked to concerns over rising gold imports and strong inflows into gold investment products. As these ETF units are backed by physical gold, sustained inflows into such products can translate into higher demand for imported gold.
Gold ETFs are one of the closest alternatives for investors seeking exposure to gold through market-linked investments. While there are restrictions on fresh investments in several Gold FoFs, there are none on their ETFs.
Gold FoFs are generally more convenient for retail investors because they can be bought and redeemed like any other mutual fund scheme without requiring a demat account. Gold ETFs can only be bought and sold through a demat and trading account
Gold ETFs typically have lower costs because investors bear only the ETF’s expense ratio. In a Gold FoF, investors indirectly bear the expenses of both the FoF and the underlying ETF.
Gold ETFs can be bought and sold on stock exchanges during market hours, while Gold FoFs are purchased and redeemed at the day’s closing net asset value (NAV), like regular mutual funds.
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Want to invest in gold through mutual funds? Here are the options after Gold FoF curbs