Definition: Gold fund, as the name suggests, invests in various forms of gold. It can be in the form of physical gold or stocks of gold mining companies. Gold funds which invest in physical gold offer investors the convenience of buying pure gold at low cost. There is no possibility of theft and you can sell these units at market linked prices anytime.
Description: There are various types of gold funds across the globe:
Gold Mining Funds: These funds invest in gold mining companies and returns from such funds are dependent on the performance of these companies. Investment demand for gold is borne out of the economic uncertainties as gold is considered to be a safe heaven when equity markets are tumbling. Dichotomy between demand and supply also govern the gold prices.
Gold ETFs: Gold ETFs are exchange traded funds where the underlying asset is gold. Therefore, value of gold ETF depends upon the price of gold. One needs a demat account to invest in an ETF. The concept of gold ETFs in India was first introduced by Benchmark Asset Management Company, in India.
Gold Fund of Fund (FoF): Gold FoF invests in the units of gold ETF and does not require a demat account.
Gold Bonds: Gold bonds are free from issues like making changes and purity in the case of gold in jewellery form. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. They are linked to the gold price and is thus expected to fetch the investors the same returns as that in case of physical gold.
Source: Economic Times/ businesstoday