Dhanteras 2020: 5 Reasons to Prefer Gold Funds Over Physical Gold

Dhanteras is the first day of Diwali. The day is considered to be an auspicious one to make new trades and purchases. In particular, the day is marked by purchasing gold and silver articles. With gold prices soaring high these days, the question is, should you purchase gold jewellery this Dhanteras? 

The price per one gram of 24 carats gold is now over Rs 5,000. To add to that, you will have to bear hefty making and wastage charges along with GST at a rate of 3%. These unnecessary charges have made investing in physical gold an unattractive option. 

This is where investing in gold mutual funds scores better. These funds invest directly or indirectly in gold reserves. They invest in equities of companies involved in gold mining, distribution, and so on. Therefore, the movement in the gold price directly impacts the net asset value (NAV) or the cost of fund units of gold funds. 

To make gold fund units affordable for everyone, the fund houses or asset management companies allow individuals to invest as a sum as low as Rs 100 to Rs 1,000. You will be allocated with the fund units corresponding to the amount you invest. The more you invest, the higher will be the number of units allocated in paper or dematerialised form. 

Here are 5 reasons to prefer gold funds over physical gold:

1) Need not worry about the purity of gold

The purest form of gold backs the units of a gold mutual fund. Therefore, you need not worry about purity. On the other hand, if you are to purchase physical gold, you have to buy it from the trusted sources to ensure that there is no compromise on purity. 

2) Can invest even Rs 100

Some fund houses allow investors to get started with their gold investment with a sum as low as Rs 100, while a gram of 24 carats gold is now nearing the Rs 5,500 mark. Most fund houses have set the minimum investment in the range of Rs 100 to Rs 1,000 so that all individuals can hold gold. 

Also Read: Dhanteras 2020: 4 Ways to Purchase Gold

3) There are no unnecessary charges

Purchasing gold jewellery comes with a lot of unnecessary costs such as making and wastage charges to name a few. It doesn’t end there. You will also have a GST at 3% on the entire purchase price. All these charges amount to a significant sum and have made investing in gold jewellery unattractive. Gold mutual funds do not come with these unnecessary charges, and hence, the cost of investment is on the lower side. 

4) Provide high liquidity 

Gold funds are open-ended. There is no lock-in period. You can buy or sell gold fund units at any time at the prevailing net asset value. The redemption of gold fund units is quicker and more hassle-free than selling or pawning physical gold. You can redeem your investments in just a few clicks. 

5) Need not worry about the safety 

Since gold fund units are issued in dematerialised or digital form, there exists no risk of theft. You need not spend money on preserving your gold fund units in a safe locker or bank. Furthermore, you don’t need to have a Demat account to invest in gold mutual funds. 

This Dhanteras, take the wise step of investing in gold mutual funds over physical gold. The former comes with several benefits and is cost-effective. 

For any clarifications/feedback on the topic, please contact the writer at  vineeth.nc@cleartax.in