Indian investors often consider Gold as a safe investment and traditionally Gold for many Indians is the only investment. Gold is considered as family property and passed on from generation to generation. The issue with Gold is that is a pure growth investment i.e. the return from Goold is completely dependent on the price.
That being said, Gold provides an effective diversification due to negative correlation with the market indices.
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DIFFERENT WAYS TO INVEST IN GOLD APART FROM PHYSICAL GOLD
1. GOLD EXCHANGE TRADED FUNDS (ETF) Gold ETF is an ETF which primarily invest in Gold & Gold related instruments and listed in the stock exchange. The ETF tracks the spot price of Gold. This is a better alternative to physical Gold because it is easier to buy and sell and the safekeeping is less of a hassle.
Gold-related instruments are securities which have Gold as the underlying.
2. GOLD FUND OF FUNDS (FOF) Gold Fund of Funds is a type of mutual funds which invest in Gold ETFs.
3. GOLD BASED EQUITY FUNDS OR GOLD MINING FUNDS These equity funds invest in equities of companies involved in mining, processing and marketing of Gold. The above-mentioned investments track the Gold spot price closely but these funds may not. Apart from the Gold price risk, the idiosyncratic risk associated with the companies these funds invest in adds on for these funds.
GOLD ETFs vs GOLD FUNDS
Investing in Gold ETFs require the investors to have demat account and pay brokerage charges but the management cost is much less.
As both Gold FOFs and Gold mining funds are types of mutual funds, investors do not need demat accounts or pay brokerage. But, they have to pay a higher management cost. In the case of Gold FOFs, the investors will have pay both the asset management cost for the ETFs and the FOF.
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