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.
Why invest in gold mutual funds when we can invest in gold ETFs?
A Gold ETF is an exchange-traded fund (ETF) that aims to track the price of domestic physical gold. They are passive investment instruments that are based on gold prices and invest in gold bars. Gold is usually kept in ornamental form, which has a certain component of production and waste (usually more than 10% of the bill value). This is eliminated when investing in a Gold Fund.
Buying gold ETFs means that you are buying gold in electronic form. You can buy and sell gold ETFs just as you would trade in stocks. When you actually redeem the Gold ETF, you don’t get physical gold but you receive the cash equivalent. Trading gold ETFs is done through a dematerialized account (Demat) and a broker, which makes it an extremely convenient way to invest in gold electronically.
Because of its direct gold price, there is complete transparency about the holdings of a gold ETF. Moreover, due to its unique structure and creation mechanism, ETFs have much lower fees than investments in physical gold.