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Gold has always had a certain mystique. Across cultures and centuries, it has been seen as a symbol of wealth and a safe place to hide when the world turns uncertain. Over the past year, the yellow metal has reminded investors of its strength, delivering equity-like returns of nearly 50% while many other asset classes have struggled.
That performance has rekindled interest in gold, but here’s the key lesson: gold’s true worth lies not in quick rallies but in the balance it brings to your portfolio over time. It is less about chasing returns and more about ensuring stability. The good news is that you don’t have to buy and store physical bars or coins. The mutual fund universe offers several simple ways to gain exposure to gold.
Gold ETFs: The Direct Route
One of the most convenient options is a gold exchange traded fund (ETF). These trade on the stock exchange just like shares, and you can start with as little as ?100. Each unit represents a fixed quantity of gold, and prices mirror the international price of the metal.
These funds are required by the regulator to hold gold of highest purity, stored safely in professional vaults. The only catch? You need a demat account to buy and sell them.
Gold FoFs: Simpler for Beginners
If you don’t have a demat account, a gold fund of funds (FoF) might be a better option. These FoFs invest in gold ETFs, but you can buy units just like any other mutual fund. The added benefit is that you can invest through a systematic investment plan (SIP). This way, you gradually build your gold holding and avoid the risk of entering at a high point.
While gold FoFs charge a bit more than ETFs because of the double layer of costs, they do away with brokerage charges. Some even let you start with SIPs as low as ?100.
Multi-Asset Funds: Let the Fund Manager Decide
Another way to get exposure to gold is through multi-asset funds. These funds don’t just buy gold—they also invest in equities, bonds, silver, and even real estate investment trusts. Because the mix is managed by professionals, you don’t have to worry about deciding when to increase or reduce your gold allocation.
Sovereign Gold Bonds: Attractive but Tricky
The government’s sovereign gold bonds (SGBs) are another option, though a bit more complex. These bonds, backed by the government, offer the added sweetener of 2.5% annual interest on top of gold’s price appreciation. If you hold them until maturity, the capital gains are tax-free.
But there are caveats. At present, no fresh issuances are open, and secondary market prices are often at a premium. Choosing the right bond requires care—longer-dated ones may deliver more value thanks to the interest component, but they also lock you in for longer. For first-time investors, SGBs may be best avoided.
The Bottom Line
Gold is not a substitute for equities or bonds, but it deserves a place in your portfolio. For most investors, a 5–7% allocation is a good starting point.
If you’re just beginning, gold ETFs or FoFs are the simplest entry points. Multi-asset funds are useful if you want the fund manager to handle asset allocation.
Gold may sparkle in rallies, but its true value is as a steady companion, giving stability to your portfolio through good times and bad.
Disclaimer: This report is prepared in his personal capacity and neither the Author nor Money Honey Financial Services Pvt Ltd assumes any responsibility or liability for any error or omission in the content of the article. Investments in mutual funds and other risky assets are subject to market risks. Please seek advice from an investment professional before investing.