A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
The advantages of ETFs and gold funds
Gold ETFs invest in gold bars of 99.5% purity which is as good as investing in the physical metal. If you’re looking to accumulate gold over the long term, investing in gold ETFs is a wiser option than keeping it in physical shape or investing in a gold fund.
Gold Mutual Funds invests in shares of companies involved in the mining, processing, manufacture and distribution of gold. The performance of gold funds depends on the movement of the stock prices of these companies. While gold ETFs offer returns directly linked to the performance of the metal, gold funds offer returns linked to the performance of the gold industry.
Gold mutual funds, managed by actively managed fund managers, have the potential to offer higher returns than gold ETFs that mimic a market index. Because ETFs track an index, Gold ETFs have a lower expense ratio than the Gold Fund. Gold ETFs track the price movement of the physical metal more precisely than gold mutual funds. Because ETFs are listed on the stock exchange, they offer high liquidity. You can buy or sell your holdings at any time of the day at the price of gold in real time. Therefore, gold ETFs are a good alternative to owning physical gold. Gold funds offer a good opportunity to invest in the gold industry for the long term through the SIP.
