Gold has held a significant position in both Indian culture and investment portfolios for centuries. In the volatile economic landscape of 2023-2024, the precious yellow metal has continued to shine, offering a hedge against inflation and market fluctuations.

Gold is considered a symbol of prosperity and purity in Indian culture. It plays a central role in religious ceremonies, weddings, and festivals like the upcoming Gudi Padwa, Akshaya Tritiya, Dussehra and Dhanteras during Diwali. Amidst these periods, demand for gold surges as people purchase it for auspicious gifting, investment purposes, and to adorn deities.

This cultural reverence translates into a massive Indian gold market, making price fluctuations and performance as an asset class a topic of keen interest. The Indian gold market witnessed a robust performance in Fiscal Year 2023-2024. Buoyed by global factors like geopolitical tensions and sluggish growth in major economies, gold prices on the Multi Commodity Exchange (MCX) surged by over 12%.

This translates to a rise from approximately Rs 54,874.00 per 10 grams at the beginning of the year 2023 in January to around Rs 62,939 per 10 grams by year-end 2023. As of March 2024, the Gold spot market price surged at Rs 66,987 per 10 grams and is currently trading around Rs 69,000, nearing the Rs 70,000 mark on MCX.

Several factors contribute to this positive performance:

  • Geopolitical Tensions: Escalating conflicts worldwide, particularly the recent Israel-Hamas war, heightened investor risk aversion, driving them towards safe-haven assets like gold.
  • Monetary Policy Tightening: Central banks across the globe, including the Reserve Bank of India (RBI), adopted tighter monetary policies to combat inflation. This triggered a flight from riskier assets like equities, pushing investors towards gold.
  • Equity Market Volatility: Stock markets experienced fluctuations throughout the year 2023. Investors seeking stability turned to gold, contributing to its price increase.
  • Weakening Rupee: A depreciating rupee against the US dollar often leads to a rise in gold prices denominated in rupees. This correlation held true in FY 2023-2024, further bolstering gold’s appeal.

[Read: How Would Gold Perform in 2024]

Despite these uncertainties, many analysts believe that gold will remain a valuable asset class in the long run. Its historical performance as a hedge against inflation and market volatility makes it a compelling diversification tool for investors.

Graph: Gold Prices Have Steadily Climbed Over the Years (Past 10 years data)

Data as of April 05, 2024
MCX spot price of gold used.
Past performance is not indicative of future returns.
(Source: MCX, data collated by PersonalFN Research) 

The graph above shows, that the past decade (2014-2024) witnessed a significant surge in gold prices in India and the asset has exhibited its sheen. To know what’s driving up the price of gold? Watch this video:

Gold Mutual Funds: A Convenient Way to Invest in Gold

For many investors, physical gold comes with storage and security concerns. For those interested in including gold in their portfolio, gold mutual funds offer a convenient and accessible option. These funds invest in instruments like Gold Exchange Traded Funds (ETFs) or physical gold, mirroring their price movements.

Gold mutual Funds typically come in two forms: Gold Exchange Traded Fund and Gold Savings Fund. Like any other mutual fund scheme, they are professionally managed by a fund manager and the team at the fund house.

Gold ETFs aim to generate returns broadly in line with the domestic price of gold. If gold appreciates, you benefit. To invest in Gold ETFs, you need a Demat Account and Trading Account, and the purchase order can be placed through your broker – just like how you buy shares on the recognised stock exchange.

[Read: Gold Investment Strategies: Gold ETFs vs Gold Mutual Funds, Which One Should You Choose?]

Gold Savings Fund is a Fund of Fund Scheme investing in underlying Gold ETFs, it strives to produce parallel returns that closely resemble the underlying Gold ETF. To invest in a Gold Savings Fund, you are not required to have a Demat account.

Do note that investments in Gold ETFs cannot be made through the Systematic Investment Plan (SIP) route; however, one can easily invest in gold via SIPs through a Gold Savings Fund with a sum of as little as Rs 500/-. The units purchased will be backed by 0.995 finesse of physical gold by the respective fund house.

In addition, since Gold mutual funds are easily purchased or redeemed at any moment, just like any other equity mutual fund scheme, they are likewise regarded as liquid. From a taxation standpoint, similar to a debt mutual fund scheme, the returns on Gold mutual funds and the capital gains on the sale of Gold ETF units are now subject to taxation at the marginal rate or according to your income-tax slab.

This article delves into the world of gold mutual funds in India, providing a comprehensive guide for investors seeking to add a touch of gold to their investment strategy.

List Of Gold Mutual Funds in India for 2024 Based on Last 5 Years Return

Scheme Name Absolute CAGR
1 Year 3 Years 5 Years 7 Years
Axis Gold Fund- (G)- Direct Plan 16.66 14.54 16.18 12.22
SBI Gold- (G) – Direct Plan 16.30 15.17 16.01 12.29
Quantum Gold Saving Fund(G)-Direct Plan 16.42 14.69 15.93 12.06
HDFC Gold Fund(G) – Direct Plan 15.95 14.41 15.82 12.18
LIC MF Gold ETF FoF(G) – Direct Plan 16.22 15.01 15.73 11.60
Invesco India Gold ETF FoF(G) – Direct Plan 16.24 14.32 15.72 11.75
Nippon India Gold Savings Fund(G) – Direct Plan 16.03 14.33 15.70 11.92
ICICI Pru Regular Gold Savings Fund (FOF)(G) 15.98 14.90 15.62 11.76
Kotak Gold Fund(G) – Direct Plan 16.15 14.54 15.57 12.26
Aditya Birla SL Gold Fund(G) – Direct Plan 16.03 14.26 15.32 11.91
Category Average: Gold 16.03 15.11 16.27 12.36

Data as of April 05, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research) 

Let us explore the top 5 contenders for Gold Mutual Fund in 2024 and analyse their strengths, weaknesses, and suitability for different investor profiles. Additionally, we’ll equip you with the knowledge to make informed decisions when navigating the gold mutual fund landscape.

#1 – HDFC Gold Fund

It is an open-ended Fund of Fund (FOF) scheme which aims to achieve capital appreciation by investing primarily in units of HDFC Gold Exchange Traded Fund (ETF). This ETF, in turn, tracks the domestic price of gold.

The fund employs a passive investment style. It doesn’t actively attempt to outperform the benchmark (gold price) but instead seeks to mirror its movements. The fund’s performance is directly linked to the domestic price of gold. When gold prices rise, the fund’s NAV (Net Asset Value) increases proportionately, reflecting positive returns for investors and vice versa.

Launched in November 2011, the scheme currently has an AUM of Rs 1,682.18 crore. When compared to its peers like ICICI Prudential Gold Savings Fund and Axis Gold Fund, HDFC Gold Fund’s historical returns fall within a similar range.

#2 Axis Gold Fund

Axis Gold Fund is one of the popular choices for investors seeking exposure to gold prices in the Indian market. This fund mirrors the performance of Axis Gold ETF, replicating the movement of domestic gold prices. It has a proven track record, with a 3-5-year CAGR exceeding 10%. The fund also benefits from a direct plan option, offering lower expense ratios compared to regular plans.

The fund manager doesn’t actively try to outperform the benchmark (gold price) by selecting specific gold mining companies or gold ETFs. Instead, the focus is on replicating the performance of the underlying Axis Gold ETF, which itself tracks the domestic gold price. Axis Gold Fund has consistently delivered competitive returns, making it a strong contender for investors seeking performance-driven options.

#3 ICICI Prudential Regular Gold Savings Fund (FoF)

ICICI Prudential Regular Gold Savings Fund invests primarily in units of ICICI Prudential Gold ETF, which tracks the domestic price of gold. The fund boasts a strong track record, consistently outperforming its benchmark over the past 3 and 5 years (as of March 31, 2024). The fund’s expense ratio is also relatively low, making it an attractive option for cost-conscious investors.

The fund has a well-established track record of closely mirroring gold price movements. Launched in October 2011, the scheme currently holds an AUM of Rs 782.18 crore. When compared to its peers, the fund has generated significant returns at par with the category average and the benchmark index.

#4 Kotak Gold Fund

This fund invests in units of Kotak Gold ETF, tracking the domestic price of gold. It stands out for its focus on portfolio diversification, holding a small portion of its assets in liquid instruments to manage short-term cash flows. The fund’s expense ratio falls within the industry average.

Launched in March 2011, this scheme has been in existence for 13 years and currently holds an AUM of Rs 1,576.15 crore. Kotak Gold Fund is benchmarked against the Crisil 10 Yr Gilt Index as the primary index and Gold-India as the secondary index. Kotak Gold Fund demonstrates a history of consistent performance, providing a reliable option for investors seeking stability.

#5 SBI Gold Fund

SBI Gold Fund is a prominent player in the Indian gold mutual fund landscape. Launched in September 2011, the fund tracks the performance of SBI Gold ETF, mirroring domestic gold price movements. It comes with the backing of a trusted brand – State Bank of India – and boasts a competitive Expense Ratio.

Like other gold mutual funds, SBI Gold Fund offers superior liquidity compared to physical gold. Investors can conveniently buy or sell units on stock exchanges or through online platforms offered by mutual fund distributors.

Key Considerations for Selecting Gold Mutual Funds

  • Investment Horizon: Gold is best suited for a long-term investment approach. Ideally, a 5-10-year horizon can help you ride out market ups and downs and benefit from long-term gold price appreciation, if any.
  • Low Tracking Error: Tracking error measures the deviation between a fund’s returns and its benchmark (gold price in this case). A low tracking error signifies that the fund’s returns are tightly aligned with the gold price movement. This alignment is crucial for investors seeking a convenient and cost-effective way to participate in the gold market.
  • Expense Ratio: Compare expense ratios of different gold mutual funds. Lower expense ratios translate to higher returns for the investor.
  • Fund Management Style: Choose between passively managed funds that track gold prices and actively managed funds that invest in gold ETFs and mining companies.
  • Long-performance Track Record: While past performance does not guarantee future results, it can provide valuable insights into a fund’s consistency and risk profile.
  • Suitability: Ask yourself questions like – Are you looking for capital appreciation, a hedge against inflation, seeking long-term exposure to gold prices or portfolio diversification? Understanding your goals will guide your gold mutual fund selection.

The gold mutual fund landscape in India is vast and ever-evolving. While the top 5 listed above represent some of the most popular and well-performing options, it’s crucial to conduct your own research and compare various gold mutual funds.

[Read: All You Need to Know About Gold Mutual Funds]

To summarise…

Gold’s performance in FY 2023-24 underlines its enduring appeal as a safe-haven asset in India. While the future outlook carries some uncertainty, gold is expected to retain its significance as a valuable portfolio diversification tool. Gold mutual funds provide a convenient and accessible way to participate in the gold market, offering professional management and high liquidity.

By carefully considering your investment goals and risk tolerance, you can leverage gold mutual funds to enhance your portfolio’s resilience in the face of market fluctuations.

This article first appeared on PersonalFN here

Leave a Reply

Your email address will not be published. Required fields are marked *