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What is Gold Mutual Funds 2022 – Basics & Purpose of Gold Mutual Funds

What are gold mutual funds and how do they work? Here is an article on gold mutual funds, difference between Gold ETFs and how to invest in them.

We Indians love our gold a lot. We buy gold in both forms: pure gold for investment and jewellery for consumption. This article will discuss how to invest in gold through gold mutual funds. We will understand the basics & purpose of gold mutual funds.

What is a gold mutual fund and how does it work?

A gold mutual fund is a fund of fund (FoF). It collects money from investors and invests in gold exchange-traded fund (ETF) units. One unit of a gold mutual fund represents one gram of gold. The price of a unit is linked to the price of physical gold.

You can invest in a gold mutual fund at the time of a new fund offering (NFO) or anytime later. The investors are assigned units in proportion to their investment. The profit or loss of investors depends on the movement in the net asset value (NAV) of the unit from the investor’s purchase price. An investor can invest in a gold fund either in a lump sum or start a systematic investment plan (SIP).

How are gold funds different from gold ETFs?

Gold ETF and gold fund are both provided by the same AMC. Both schemes provide an option for an investor to invest in gold in electronic format. While a gold ETF invests directly in physical gold, a gold mutual fund invests in the units of a gold ETF. Some of the differences between gold ETFs and gold mutual funds include:

FeatureGold ETFGold mutual fund
Demat accountGold ETF units can be bought and sold through the stock exchange, and hence demat account is required. Units purchased are credited to the demat account, and units sold are debited from the demat account.Gold mutual fund units are bought and redeemed through the AMC. Hence, there is no need for a demat account. The AMC maintains the record of units bought and redeemed.
ExpensesThe expense ratio of a gold ETF is lower than that of a gold mutual fund. But, a gold ETF has other expenses like brokerage to be paid for purchase and sale transactions, demat account AMC.The expense ratio of a gold mutual fund is higher than that of a gold ETF. In a gold mutual fund, there is no brokerage and demat account AMC.
Minimum transaction amountThe minimum gold ETF purchase is 1 unit which is equivalent to the price of 1 gram of gold.The AMC decides the minimum transaction amount, which can be Rs. 500 or Rs. 1,000. You can buy fractional units. 
Trading of unitsThe trading of gold ETF units happens on the stock exchange during market hours. The price of 1 unit depends on the demand and supply, and it can be higher or lower than the NAV.Gold mutual fund units can’t be traded on the stock exchange during market hours. The AMC declares the NAV at the end of every trading session. All transactions for a specific day happen at the NAV for that day.
SIP mode of investingYou cannot do a SIP for gold ETFsYou can do a SIP for gold mutual fund units.
LiquidityIn gold ETFs, liquidity can be an issue depending on the buyers and sellers available. If liquidity is low, you may have to pay a premium to NAV for purchases and sell at a discount to NAV.Liquidity is not an issue in gold mutual funds as all purchases and redemptions happen through the AMC. All transactions happen at the NAV.

Things to consider as an investor

While investing in gold mutual funds, as an investor, you should consider the following things:

  1. Gold is a part of asset allocation: Asset allocation requires investors to diversify their investment portfolio across various asset classes such as equity, debt, gold, real estate, etc. So, you should allocate some portion of your investment portfolio to gold.
  2. Gold is a safe haven during uncertainty: During times of pandemic, recession, war, civil unrest, political instability, etc., gold is considered as a safe haven. Gold tends to do well during such times. Hence, gold should be a part of your investment portfolio.
  3. Gold is a hedge against inflation: During times of high inflation, other asset classes such as equity and debt may not do well. During such times, gold is considered as a hedge against inflation.

How to invest in gold funds?

To invest in a gold fund, you can approach the AMC directly or through an intermediary. You can invest in a gold fund either during the New Fund Offering (NFO) or anytime later. AMCs allow lump sum investment as well as SIP. 

Taxation of gold funds

  1. Short-term capital gain (STCG) tax: When you sell your gold mutual fund units within 36 months of purchase, the profit is known as STCG. The STCG will be added to your overall income and taxed as per your income slab.
  2. Long-term capital gain (LTCG) tax: When you sell your gold mutual fund units after 36 months of purchase, the profit is known as LTCG. The LTCG will be taxed at 20% with indexation benefit.

Top 5 gold funds in India

Let us look at the returns of top gold funds in India.

Scheme nameAUM (Rs. crores)1-year3-years5-years
Kotak Gold Fund1,169-6.54%14.28%10.45%
Aditya Birla Sun Life Gold Fund255-6.65%13.22%10.22%
SBI Gold Fund1,219-7.56%13.56%10.01%
HDFC Gold Fund1,295-7.57%13.52%9.97%
Axis Gold Fund256-7.27%13.28%9.79%


Note: The returns are as of 7th Jan 2022. The returns are for direct plans with growth option. The one-year returns are absolute. The three and five-year returns are CAGR. The funds have been ranked based on five-year performance.


Starting a SIP in a gold mutual fund helps you accumulate gold in small quantities every month. As the gold is in electronic format, there are no additional costs for storage and insurance. Gold mutual funds are an excellent investment product for long-term financial goals such as accumulating gold for a child's wedding.

To start investing in gold mutual fund schemes as per your appropriate asset allocation, download the Glide Invest App from Google Play Store or Apple App Store and get started.

To read more on similar topics, click here:

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