Gold FOF – Meaning and Reasons to Invest in Gold FOFs

Gold FOF means Gold Fund of Funds. This mutual fund invests in Gold ETFs. It offers less risk and is a simple way to benefit from the rising price of gold. The investors do not have to buy physical gold or stocks directly. In GOLD FoF the asset management companies pooled fund from different investors and invests the same in Gold ETFs and other gold related instruments, which eventually spreads the risk of the investor.

In this article, we have discussed the meaning of Gold FOFs, reasons to invest, and how it is different from Gold ETFs.

Reasons to Invest in Gold FOF

Gold FOFs are the new investment option in the market. It offers a lot of benefits to the investors which can be checked below. 

1. Gold as a Timeless Asset

Gold is considered the best investment option over the years. Its value has endured economic crisis making it a reliable store of wealth.

2. Gold as a Currency Alternative

Historically used as currency, gold retains its inherent value. While no longer a primary medium of exchange, its traceability and potential for appreciation make it a desirable asset.

3. Hedging Against Inflation

Gold protects purchasing power during inflation. When the value of currency declines the price of gold often rises. This offers protection to investors against inflation.

4. Accessibility and Simplicity

Investing in gold through FOFs is simple and anyone can invest in it. This makes it accessible to a wide range of investors.

5. Hassle-Free Ownership

Gold FOFs eliminate the issues related to storage and purity verification. Investors can benefit from gold ownership without the associated burdens.

6. Portfolio Diversification

Adding gold into an investment portfolio reduces overall risk due to diversification. Gold’s low correlation with other asset classes can stabilize returns during market fluctuations.

7. Small Investment Potential

Gold FOFs allow investors to start with smaller amounts. This makes it accessible for those with limited capital.

8. Relative Stability

The gold-based mutual funds are more stable as compared to other stocks and shares. This makes it a less risky investment.

9. No Demat Account Requirement

Investing in Gold FOFs does not require investors to have a Demat account. This makes it less complex and also reduces extra costs.

Pros and Cons of Investing in Gold FOF

Here is a pointer-based data analysing the advantages and disadvantages of Gold FOF:

Pros of Investing in Gold FOF

• Gold FOF is a great way to diversify the portfolio. It also helps to reduce the overall risk. 

• Gold is considered a safe investment during the economic crisis. This leads to more demand and increased prices. 
• Gold FOFs are managed by investment professionals and is a passively managed fund, hence makes it a suitable investment option.
• Gold FOF units offer liquidity and can be bought and sold easily. This offers flexibility and helps investors to manage their investments.

Cons of Investing in Gold FOF

• Investors do not own physical gold, which makes the investment less appealing.
• The investment comes with management fees. This, in turn, elevates the cost of Gold FOF. 
• The performance of Gold FOFs is directly proportional to the price of gold. 
• Gold FOFs do not generate regular income like stocks. Investors have to rely on capital appreciation for returns. 
• The tax applies to Gold FOFs in the form of long-term capital gains.

Gold FOF vs Gold ETF

Gold FOF and Gold ETF are two different things and they differ on a lot of factors. Go through the table below to know about the major differences between both.

Feature	Gold FOF	Gold ETF
Investment Structure	A Gold FOF is a mutual fund that primarily invests in Gold ETFs.	A Gold ETF is an investment unit that depends on gold price. It invests in underlying assets related to gold.
Account Requirement	A Demat account is not required. Investors can purchase units through mutual fund platforms.	Investing in a Gold ETF necessitates a Demat and trading account.
Expense Ratio	Gold FOFs typically have higher expense ratios. This is because of the fees of fund management.	Gold ETFs generally have lower expense ratios but there are transactional charges applicable on buying and selling it.
Exit Load	Some gold FOFs come with an exit load if withdrawal is made within a particular time period.	Gold ETFs do not have exit loads.
Minimum Investment	The minimum investment value for gold FOFs is lower as compared to Gold ETFs.	Gold ETFs are high in price as they depend on the current gold price.

Conclusion

In conclusion, Gold FOFs are a good investment opportunity for young investors. It helps them to diversify their portfolio and works best during inflation. Also, it is less risky, because it does not require investors to buy shares directly  Gold FOFs have emerged as a prudent choice for investors looking to capitalise on gold price.

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Disclaimer – This article is for educational purposes only and does not intend to substitute expert guidance. Mutual fund investments are subject to market risks. Please read the scheme-related document carefully before investing.