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Should Senior Citizens Include Gold Mutual Funds In Their Portfolio?

Gold provides stability during economic uncertainties when other asset classes could be adversely affected, thus ensuring protection to the investment portfolio. 

November 8, 2023
November 8, 2023
Gold Mutual Funds

Gold Mutual Funds

Gold assets can ensure protection to the portfolio during economic uncertainties when other asset classes might become volatile. Interestingly, there are many product options for gold investors, allowing them to balance their portfolio based on their short- and long-term needs. Besides gold jewellery, bars and coins, there are digital gold, sovereign gold bonds, and gold mutual funds they can choose from. However, of the above products, gold mutual funds could be of interest to senior citizens as they have the potential to provide robust returns through compounding. 

Gold mutual funds invest in gold-exchange traded funds (ETFs), which invest in gold bullions. The best part is that you don’t need to open a demat account to buy a gold mutual fund. You can purchase a gold mutual fund directly from asset management companies (AMCs) or through intermediaries like banks. Moreover, you can redeem it on any working day. 

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How Have Gold Funds Performed In One Year? 

Here are the top five gold funds that delivered around 19 per cent returns over the past year.  

According to data from the Association of Mutual Funds in India (AMFI), LIC MF Gold ETF FoF saw 20.0 per cent returns in a year, followed by SBI Gold Fund, with a one-year return of 19.51 per cent. Likewise, Kotak Gold Fund and Aditya Birla Sun Life Gold Fund returned over 19 per cent, while HDFC Gold Fund gave a 19.26 per cent return in one year. Although gold funds delivered over 19 per cent yearly, it is lower than the benchmark’s 20.43 per cent returns. 

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What Are The Other Options? 

While gold MF is an excellent product for growth and diversification, there is another available option—gold ETFs, which delivered a slightly higher return in the same period. LIC Mutual Fund Gold ETF returned 21.0 per cent, and SBI Gold ETF raked 20.20 per cent in a year. Since these products are transacted digitally, senior citizens may find it uncomfortable to deal with such products because of their age-related issues. Besides, there is no guarantee of return in Gold mutual funds or gold ETFs, which senior citizens generally seek. In that case, Sovereign Gold Bonds (SGBs) could be an option that offers a guaranteed interest income of 2.5 per cent, although there is no guarantee of the maturity value. The eight-year maturity of SGBs may also be at a disadvantage for senior citizens. So, given the pros and cons of each of these products, how is the gold mutual fund fair vis-a-vis the senior citizens’ expectations? 

Should Seniors Consider Investing In Gold Mutual Funds? 

According to Rushabh Desai, founder of Rupee With Rushabh Investment Services, “It is important to diversify across physical gold, gold mutual funds, and sovereign gold bonds for liquidity, convenience, and tax efficiency”. 

Desai adds, “I would not recommend investors to invest in gold for an investment perspective; the right time to invest in gold is when gold is in the corrective pocket. Gold is a cyclical asset class and may not give any returns for years at a stretch; thus, timing the entry and exit is important from an investment perspective if investors want to generate decent returns”.  

Gold is primarily for diversification purposes rather than returns, and along with the timing, the time horizon is also important. Gold prices can also be volatile in the short term. 

Desai explains: “Minimum time horizon should be 3 to 5 years depending on the entry point. Senior citizens should have gold in moderation for crises/emergencies and diversification, but more focus should be on fixed-income investments. SGBs are attractive from a taxation point of view”. 

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