Benefits of Investing in Gold Funds

11 Sep    Gold

Why invest in gold?
Gold, the most precious metal of all, is also a popular form of investment. The savings come handy, for instance, during your daughter’s wedding. Investors can make the most out of its appreciating value potential without going through the hassles of physically possessing it, through Gold ETFs and Fund of Funds (FoFs). Better still, one may invest a small amount through SIP in Gold FoFs. So invest now and enjoy its growth potential.

Gold Fund is an open ended Fund of Fund scheme, which will invest in units of Gold Exchange Traded Scheme. The scheme seeks to provide returns that closely correspond to the returns provided by ETF’s. It gives you the benefit of getting an exposure to gold asset class in a convenient way, without having a Demat Account.

Consistent asset class:

Gold as an investment asset has given positive returns (in USD) for each calendar year during the last decade outpacing most of asset classes.

Hedge against other asset class:
Gold, as an asset class has low correlation with other asset classes like equity and bonds. It has low correlation with economic downturn in volatile times and is a good hedge against inflation. Coupled with strong appreciation for over a decade, Gold has emerged as an important asset class for investments in one’s portfolio.

Easy and convenient way to diversify one’s portfolio.

Gold Fund Benefits

No need to hold or open a DEMAT account: SBI Gold fund provides an opportunity for the investor, to take exposure into Gold as an asset class, in smaller and convenient investment amount without having a demat account.

Systematic Investment Plan (SIP): It is a long term disciplined investment technique which provides a systematic way of investing in Gold. This allows you to save and invest regularly without ‘timing the markets’.

Liquidity: An investor can subscribe and redeem gold fund on all business days.

Cost Effective: Investing in gold through the SBI Gold Fund in physical application mode enables you to invest in a low cost manner as the investor does not have to incur expenses like annual maintenance charges for demat account , delivery /brokerages charges or transaction charges incurred for investing through the dematerialized mode. However, investors will be bearing the recurring expenses of the scheme, in addition to the expenses of the underlying Scheme.>

Tax Benefits: SBI Gold Fund is treated as a non equity product from tax perspective. It enables an investor to claim long term capital gains tax after a period of one year of investments, whereas for physical gold long term taxation is available after 3 years.

Convenience of investing: Investing in gold through SBI Gold Fund is easy – investors can directly subscribe units through at the various designated investor service centre across the country thereby making it easily accessible and convenient.

Assured Purity & Security: SBI Gold Fund would invest in units of SBI Gold Exchange Trade Scheme (SBI GETS) and all gold bullion held in SBI GETS shall be of fineness of 995 parts per 1000 and it will be held safe with the custodian.

Availability of add on facility: The fund allows investors to avail add-on facilities like systematic transfer plan, systematic investment plan and systematic withdrawal plan.

Comparision of Gold Fund with other gold instrument

How does a GETF work?

A fund house offering a GETF appoints authorised participants who initially buy the units of a GETF from the mutual fund by exchanging actual pure gold for the units of GETF. These authorised participants engage in secondary market trading of gold. The underlying gold is kept with the fund house in the form of physical gold or gold receipts, which gives it the right of ownership. Authorised participants can go back to the mutual

fund house to redeem the GETF units and can demand equivalent value of actual pure gold at any time. ETF units can be bought through a stock exchange, where investors can buy or sell gold units on payment for quantities as specifi ed by the mutual fund in its respective offer document.

When investors buy and sell GETF units on the stock exchange, no new units are created. New ETF units can be only be created directly with the fund house, when authorised participants appointed by the ETF exchange the underlying security (in this case, gold) with GETF units, from the MF. These fresh units so created lead to a surge in demand for physical gold.


  1. I don’t think that with the way the dollar index is fluxuating that it is unreasonable to think that gold will rise to 1,350 an ounce or even 1,400.

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