Best Gold Mutual Funds: Everything You Need to Know Before Investing
Investors in mutual funds highly value the best gold mutual funds. This is because gold has always been considered a reliable means of storing wealth and protecting against inflation. It is, therefore, regarded as a vital asset class in many investment portfolios.
Investing in a gold fund could offer protection and diversify your portfolio if you’re worried about the risk of a decline and increased volatility in the stock market, bonds, and other capital markets.
In addition, exposure to the gold mutual funds market through your portfolio could act as a bridge against a decline and inflation in the dollar’s value compared to other currencies. Learn more about the best gold mutual funds and their benefits.
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What Will I Learn?
- What Is the Best Gold Mutual Fund?
- Best Gold Mutual Funds
- Best Gold Mutual Funds for Bear Market
- The Advantages of Investing in Gold Mutual Funds
- Downsides of Investing in Gold Mutual Funds
- Things to Consider Before Investing in Gold Mutual Funds
- Why Should You Invest in Mutual Funds?
- What to Search for in Mutual Gold Funds
- Final Thoughts
What Is the Best Gold Mutual Fund?
Gold mutual funds are investments in the Gold Exchange Traded Funds (Gold ETFs), which are linked directly to the price of gold. These funds invest in gold bullion, using its potential as a commodity to create wealth. They offer a more convenient option for investors to invest in gold funds without holding them physically.
Overall, gold mutual funds combine the advantages of funding in physical gold with professional fund management. Although returns from gold ETFs and gold mutual funds may be similar, fluctuations in the gold price can affect the fund’s net asset value (NAV).
Investing in gold funds can be beneficial during market uncertainty or a downturn. These funds can act as insurance cover for an investor’s portfolio. Gold funds are a great investment choice for those seeking to protect their capital against inflation and looking for diversification.
Best Gold Mutual Funds
Although numerous mutual funds include gold as part of their portfolio, many also allocate their assets to other precious metals such as palladium, platinum, and silver. Furthermore, some of these funds may specifically focus on investing in companies involved in gold mining stocks, while others may trade in gold funds futures or invest predominantly in ETFs like the SGOL.
1. Franklin Gold and Precious Metals A
The Franklin Gold ETF and the Precious Metals A funds have been established since 1969 and are presently under the management of Steve Land. The fund is committed to investing in precious metals, which are considered appealing because they are tangible asset classes not bound to any financial system or particular country that may provide stability during periods of economic uncertainty.
Although this fund has demonstrated greater volatility than others in the past 10 years, it has also given investors slightly superior returns. The fund primarily focuses on capital appreciation and income generation through interest and dividends.
At least 80% is funded in stocks of mining and precious metal processing companies that deal in silver, gold, palladium, and platinum. The gold fund presently owns 140 stocks of numerous startups and new firms, with around 4% or higher in 30.
2. OCM Gold ETF
The OCM Gold Fund is a US-based investment fund managed by the director of Orell Capital Management Inc, Gregory Orell. The fund was established in 1988 and primarily invests in publicly traded mining companies listed on equity markets globally.
In addition, the fund also invests in domestic and foreign stocks of companies that provide services and goods related to precious metals and gold mining across all sectors. The primary investment objective of the OCM Gold Fund is to achieve long-term capital growth. In accomplishing this, the fund invests over 80% of the net assets in precious metals. As of the most recent disclosure, the fund’s 10 holdings comprise 59% of its total assets.
3. Gold Bullion Strategy Investor
The Gold Bullion Strategy Investor is a fund that invests all of the assets in the gold bullion-related investments to reflect the physical gold bullion stock market in value. This includes over-the-counter trades, gold ETFs, gold-forward contracts, and gold ETNs.
QGLDX is a mutual fund that uses proprietary computer models to invest daily in various gold futures contracts, aiming to track gold prices accurately. This fund is designed to be held for the long term and offers exposure to monitoring gold bullion’s daily price in a mutual fund structure, thanks to its unique trading parameters.
4. Fidelity Select Gold Fund
The Fidelity Select Gold fund was established in 1985 and is overseen by Steven C. Calhoun. This fund invests most of its assets (over 80%) into stocks of companies that deal with gold, precious metals, and minerals.
Additionally, the fund can invest up to 25% of its assets directly into gold and other precious metals via a subsidiary. The fund predominantly concentrates on equities related to mining, processing, exploration, or those directly involved with gold mutual funds, precious metals, and minerals.
Also Read: Fidelity Gold IRA Review
5. Gabelli Gold A
Gabelli Gold ETF Fund Inc. (GOLDX) was introduced in 1994 by GAMCO Investors Inc. and is presently managed by Gabelli Funds LLC. This mutual fund is diversified and does not charge a load or a fee for purchasing or selling shares.
The main objective of the fund is to achieve long-term capital appreciation by investing in companies associated with gold mining on a global scale. However, the fund is overseen by Caesar Bryan, who has been with Gabelli Gold Fund since its inception.
Bryan has considerable experience in gold fund investments, having spent seven years in the gold mining industry before joining Gabelli. While Bryan has performed well as a fund manager over time, the fund’s returns have been erratic due to fluctuations in the price of gold ETF and other factors.
Best Gold Mutual Funds for Bear Market
Here are the top three gold ETFs for the Bear market.
Rydex Inverse Nasdaq-100
The Rydex Inverse Nasdaq 100 fund aims to mimic the opposite daily performance of the Nasdaq 100 Index. This means that if the Nasdaq 100 increases by 5% in a day, the fund’s value will decrease by 5%, and if the Nasdaq 100 decreases by 5% in a day, the fund’s value will increase by 5%.
To achieve this, the fund invests in various assets, including mutual funds, federal agency notes, and repurchase agreements. It is important to note that the Nasdaq 100 Index differs from the Nasdaq Composite Index. The former represents the top 100 largest non-financial companies on the Nasdaq stock exchange.
Rydex Inverse S&P 500 Strategy
The Rydex Inverse S&P 500 Strategy fund aims to mirror the opposite performance of the S&P 500 index daily. This implies that if the S&P 500 goes up by 5% daily, the fund will decline by 5%. Conversely, if the S&P 500 falls by 5% daily, the gold exchange-traded fund will rise by 5%. To achieve this, the fund holds different types of investments, such as mutual funds, gold exchange-traded notes, and repurchase agreements. Notably, the S&P 500 is a composite of 505 large-cap American stocks.
Grizzly Short
By being actively managed, the Grizzly Short fund differentiates itself from the other two funds in this list. This means the fund’s two portfolio managers are responsible for handpicking specific stocks to sell short. The fund’s strategy involves shorting a selection of 60 to 100 large-cap stocks traded in the U.S., which the managers carefully choose.
The Advantages of Investing in Gold Mutual Funds
The gold ETF (gold mutual fund) is a popular investment option for those looking to broaden their portfolios but also secure their wealth.
Excellent Return on Investment
The gold fund is a precious resource that rarely decreases in value. Investing in mutual gold funds yields positive returns because the fund’s value is directly related to the market price of gold. As a result, it is an excellent choice for investors looking for a safe long-term investment.
Protect Yourself Against Inflation
Gold prices are unphased by inflation, which makes it a perfect minimum purchase option to manage risk against inflation. Investing in gold ETFs can protect the portfolio from the negative impact of inflation, which can devalue your investments.
Diversification
Mutual gold funds are an outstanding diversification option for investors seeking risk-free investments. You can reduce your portfolio’s overall risk and improve its performance by diversifying it with gold mutual funds. There is no need for a Demat account.
The gold mutual funds enable buyers to invest in gold ETFs for a small fee. Investments are possible without a Demat account by using a mutual fund provider. As a result, it is a convenient and affordable choice for novice investors.
Systematic Investment Strategy (SIP)
Investors can use a systematic investment plan to invest in gold mutual funds (SIP). SIPs allow investors to invest small amounts of money regularly in a reasonable manner without worrying about the significant importance of physical gold or market timing.
Additionally, investors can use Scripbox’s SIP calculator to approximate their future SIP return from the gold exchange-traded fund.
Cost-Effective
Gold mutual funds have low investment requirements, making it simple for smaller investors to fund in gold. Furthermore, no additional costs are affiliated with these investments, such as annual Demat account maintenance fees, transaction fees, brokerage fees, or delivery fees, making them cost-effective. These funds’ low expense ratios can also boost SIP returns.
Downsides of Investing in Gold Mutual Funds
Stock market supply and demand have a significant impact on gold prices. Because the gold marketplace is exceptionally seasonal, fluctuations in demand can cause price increases throughout the year. Gold prices frequently perform well whenever the stock market falls, or there is economic uncertainty.
This was evident during the 2008 stock market crash when gold assets produced positive returns. Physical gold, however, is not regarded as an excellent long-term investment option due to its high volatility. Instead, it can be viewed as an insurance policy or alternative asset during market downturns.
Gold Investment Returns: The Downside
Although gold can provide good returns throughout a market downturn, it is not considered a good long-term investment option, unlike equities. Due to low returns, investing in gold is not profitable. Gold, on the other hand, is more beneficial as an investment alternative during uncertain times.
Gold Investment Expenses: Gold Exchange Traded Funds (Gold ETFs) vs. Gold Mutual Funds
Typically, gold funds work in gold exchange-traded funds (ETFs). Gold mutual funds are more costly than gold ETFs because the price of gold ETFs is introduced to them. Furthermore, gold funds charge a load if an investment is revived before a predefined lock-in period.
However, unlike other investments, gold funds have no hidden costs such as annual Demat account maintenance, transaction, brokerage, or delivery fees. Consequently, they are inexpensive and have a lower debt-expense ratio.
Gold Investment Taxation: Holding Period Matters
The investment’s holding period determines the income tax of gains on gold funds. Assets with holding periods of 36 months are taxed at the investor’s corporate tax slab rate. On the other hand, those held for 36 months are taxed at 20.8% (such as cess) with annual inflation benefits.
Things to Consider Before Investing in Gold Mutual Funds
Investing in mutual gold funds is a way to gain exposure to precious metals without the hassle of buying physical gold. This investment option is similar to any other mutual fund and can be done through a provider. However, before making any investment decisions, there are a few things to consider as an investor.
Lower Returns and Seasonal Behaviour
Gold investments may not yield exceptionally high returns compared to equities. Typically, investments in the gold ETF are made during market uncertainties. Once the market stabilizes, investors may move their investments to riskier options, which may not earn high returns in the short term.
Additionally, gold’s performance portrays seasonal patterns. During a market crisis, it tends to earn high returns, but during other times, it may lag behind other asset classes. As an investor, tracking the historical performance of physical gold can help identify these patterns.
Diversification and Dynamic Portfolio Allocation
However, physical gold may not be the ideal asset class for diversification for investors with small to medium-sized portfolios since it typically earns lower returns than other asset classes.
However, for investors with more extensive portfolios, allocating a small amount to gold funds may help hedge risk without compromising their goals.
In addition, the discreet allocation of physical gold to the portfolio is essential. Investing in a gold ETF during a market depression may be wise to earn high returns. Therefore, a dynamic allocation approach can help maximize the benefits of investing in physical gold.
Tracking the Trend and Investing Regularly
While it’s impossible to time the market when investing, tracking the historical performance of gold’s price fluctuations can give investors a rough idea of when to enter the market. Investing a small amount at regular intervals through SIPs (systematic investment plans) can also be done with mutual gold funds, reducing the impact of market volatility on overall returns.
Why Should You Invest in Mutual Funds?
There are several compelling reasons why investing in mutual funds has become a popular investment strategy in the United States. Mutual gold funds offer convenience unmatched by other investments, such as managing a portfolio on your own.
Moreover, various investment options are available through mutual funds, providing investors with a range of choices tailored to their investment goals and risk tolerance. Investing in mutual funds also offers several other advantages. One such advantage is instant diversification, essential in minimizing risks associated with a single investment.
Mutual funds offer investors the chance to invest in a range of assets, such as stocks, bonds, or real estate, providing diversification that would be difficult to achieve independently. Additionally, they are professionally managed by experienced fund managers responsible for researching and selecting investments for the fund.
This can be a significant advantage for investors lacking the time, resources, or expertise to research individual investments. Another advantage of mutual funds is the potential for dividend income and reinvestment.
When a mutual fund invests in stocks or bonds that pay dividends, the fund passes those dividends on to investors.
Moreover, investors can reinvest those dividends into the fund, potentially increasing their investment. Investing in mutual funds can also mitigate risk by spreading investments across multiple assets and industries.
If one investment suffers a decline in value, other assets in the portfolio may perform well, offsetting any losses. Furthermore, mutual funds offer high liquidity, meaning investors can buy and sell shares quickly and easily.
This can be especially important for investors who need to access their money quickly, as mutual funds generally offer daily liquidity. Finally, there are several tax benefits associated with investing in mutual funds.
Some mutual funds may offer tax advantages, such as tax-free income or capital gains. Additionally, mutual funds are generally more tax-efficient than other investments, such as individual stocks, which may generate higher capital gains taxes when sold.
What to Search for in Mutual Gold Funds
Gold mutual funds are popular among investors as they expose physical gold without requiring physical ownership. Several metrics must be considered when evaluating a mutual gold ETF for investment.
Overall and Yearly Returns
The most apparent metrics for reviewing a gold ETF are its overall and yearly returns. These metrics reflect the fund’s performance over time and can indicate the fund’s potential to generate returns in the future.
Investment and Management Strategy
It is also essential to understand how the fund is invested and managed. Some funds actively manage their assets by buying and selling in the futures and stock markets, while others might use a more passive approach in which the fund manager seeks to mirror a primary market index.
Understanding the fund’s investment and management strategy can help you assess its potential to generate returns and manage risk.
Assets Under Management (AuM)
When choosing a gold ETF, the asset class and the amount of managed assets can be essential. A fund with a bit of AuM will generally mean lower liquidity in the stock market, which can impact the fund’s ability to generate returns and incur expenses.
Expense Ratio
On the other hand, the expense ratio represents the amount of money the fund spends to manage the assets or its operating costs of the number of assets it manages. It is crucial to consider the expense ratio because it can potentially affect the overall results of the fund.
The fee expense ratio of most mutual funds that invest in considerable fund’s assets is usually around 1%. Still, the expense ratio of mutual funds that make investments in lower capitalization equities is approximately 1.25%.
Management Style
It is also vital to consider the management style of the fund. Establishing and liquidating positions in certain funds may be handled by a proprietary complex algorithm or a star fund manager. In contrast, other funds may use a gentler approach. If you understand the fund’s management style well, you will be better able to evaluate its capacity to generate profits and manage risk.
Final Thoughts
Gold mutual funds can be helpful for investors seeking exposure to physical gold. However, investors should conduct thorough research and due diligence to identify the best gold mutual fund for their minimum investment objectives and risk tolerance.
Additionally, investors should understand the risks of investing in physical gold and be prepared for potential market fluctuations.
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About Arthur Karter
Hi, I’m Arthur, and nobody wants to wake up in their 50s like me that they are in serious debt with minimal assets. This wake-up call forced me to reevaluate everything. After going through the school of Hard Knocks, I’m ready to help you by sharing the best retirement choices and how they differ from all the same-old, same-old options that financial advisors sell. These alternatives will help you build and protect your wealth.
