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India is the second-largest consumer of gold following China and Indians buy gold in various forms like coins, bars, jewellery, etc. Gold mutual funds can be used as a hedge to protect an investor against economic shock. Many investors diversify their investment portfolio with 10 to 20% investment into gold funds as a means to secure themselves from the fluctuating market. This article will throw some light on important things to consider before investing in these mutual funds.

How do Gold Funds work?

Gold funds are types of open-ended mutual funds that directly or indirectly invest in gold reserves. The principal aim of gold mutual funds is to generate wealth by making use of gold as a commodity. Gold funds are ideal for those investors who have a desire to be exposed to gold. Experts believe that it is opportune to invest in gold via gold mutual funds rather than holding the commodity sensibly.

An investor might enjoy the benefit of holding gold physically, along with professional fund management. Each gold mutual fund has a fund manager who would take investment bets according to the objective of the fund. The returns on gold mutual funds might closely correspond to that of the gold ETF. Additionally, the NAV (net asset value) of the fund could be influenced by the total price movement of gold in the market.

Things to consider as an investor

Following are some of the things to consider before you consider to invest in gold mutual funds:

Now that you have understood the basics of gold mutual funds evaluate carefully before deciding to invest in them. It is always advised to ensure that your portfolio aligns with your investments goals and risk appetite before you choose to invest in mutual funds. Happy investing!

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