Gold is shining! The precious metal has breached the Rs 1 lakh milestone. The price of 24-carat gold crossed the Rs 1 lakh per 10 grams mark on April 22. Gold prices have increased by about 35% in the last one year. Soaring gold prices have also helped other gold-based investment instruments like gold mutual funds to register massive gains. In the last one year, top 10 gold mutual funds have delivered 34% to 36% returns.
Major reasons behind the surge in gold prices
There is not just one reason behind this massive surge, but many global and domestic factors, which together have shown why gold has always been seen as a ‘safe haven’ asset during turbulent times like we witnessed recently in the wake of the Trump administration slapping aggressive tariffs on major global economies. Here are some of the reasons other than the trade tariff tussle between the US and other countries, including India.
- Global geopolitical tensions: The Russia-Ukraine war and the confrontation in the Middle East turned investors towards gold. When there is uncertainty in the world, gold is traditionally considered the most reliable option.
- Heavy purchases by central banks: Central banks of countries like India, China, and Turkey made large-scale purchases of gold in recent times, which increased its demand significantly.
- Possible cut in US interest rates: It is widely expected that the US Federal Reserve may cut interest rates, possibly three times, strengthening gold.
- Rupee weakness: The weakness in the rupee against the dollar has made gold in India more expensive, which has further increased prices in the domestic market.
Also read: Sovereign Gold Bonds up for premature redemptions. What should investors do?
When gold shone, gold mutual funds also showed strength
Gold mutual funds have given tremendous returns in the last one year. Check out the performance of some of the top funds:
1. Tata Gold ETF
1-year return: 36.06%
2. Aditya Birla Sun Life Gold Fund
1-year return: 35.50%
3. UTI Gold Exchange Traded Fund
1-year return: 35.30%
4. LIC MF Gold ETF
1-year return: 34.83%
5. HDFC Gold ETF
1-year return: 34.33%
(Data: Value Research)
If we compare returns in physical gold with gold mutual funds, the former has given over 35% return on investment in the past 1 year against returns ranging from 34% to 36% in the top 5 gold funds.
Gold funds have directly benefitted from the rise in gold prices, especially when the equity market has been sluggish recently.
Investor’s dilemma: Physical gold or gold fund?
Physical gold (such as jewellery, biscuits, coins)
Benefits:
Cultural and emotional connection
Actual need during occasions like weddings
Can be sold or pledged at any time
Disadvantages:
-Storage and security concerns
-Additional costs like making charges and GST
-Not able to monitor returns
Also read: 5 oldest gold ETFs in India: How their long-term returns stack up against physical gold
Gold funds (ETFs or gold mutual funds)
Benefits:
-Digital, secure and transparent
-Easy tracking, easy tax documentation
-Can invest with small amounts
Disadvantages:
-Exposure to market fluctuations
-Fund management charges
Investment strategy: What to do now?
Now that gold prices have touched Rs 1 lakh, the question arises — should you invest now? Experts believe that gold is a good hedge for the long term, especially when equity markets are under pressure. However, it is important to be a little cautious after such a sharp rise.
If you want to use it along with investing, you can go for physical gold. But if the objective is only investment, then gold funds can be a more convenient and effective option.
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.