The ABCs of Gold Mutual Funds: What You Should Know Before Investing

With the volatility of the stock market, gold mutual funds provide a unique opportunity for investors who are looking to diversify their portfolios.

Gold mutual funds, also known as gold exchange-traded funds (ETFs), are a type of investment that provides exposure to the price movements of gold without needing to physically own gold.

These funds track the value of the underlying asset and are traded on stock exchanges like any other stock or bond.

By investing in a gold mutual fund, investors can diversify their portfolios and take advantage of the potential benefits that gold offers.

For those looking to diversify their investment portfolios, gold mutual funds can be an excellent option. Let’s break down the basics of gold mutual funds to help you get started. 

Table of Contents

What is a Gold Mutual Fund ?

Gold Mutual Funds are a type of investment that focuses on investing in companies related to the production, distribution, and sale of gold.

Investors who purchase shares in such funds receive returns from profits generated by companies involved in the gold industry, such as mining companies or jewelry stores.

The fund’s manager selects which companies to invest in and when to buy or sell stocks. As with any investment, there is risk associated with purchasing shares in a gold mutual fund.

Types of Gold Mutual Funds

Precious Metals Mutual Funds

Precious metals mutual funds invest primarily in gold and other precious metals, such as silver and platinum.

These funds are considered one of the safest investments because the value of these metals does not fluctuate with economic cycles as stocks or bonds do. They also offer a degree of protection from inflation.

Gold Exchange Traded Funds (ETFs)

ETFs are basically bundles of securities that track the price of gold bullion or shares in companies that mine and produce gold.

ETFs are traded on stock exchanges, just like stocks, so they can be bought and sold quickly and easily at any time during trading hours.

The advantage is that you don’t have to manage any physical investment yourself, all you have to do is buy or sell shares when it suits you best.

Learn more in the link below.

Gold Mining Stocks

Investing directly in gold mining companies via stocks is another way to gain exposure to gold prices without actually owning any physical metal.

Gold mining stocks tend to be more volatile than other forms of investing since they are highly dependent on the success (or failure) of individual companies that may be impacted by fluctuations in commodity prices, labor costs, political unrest, etc.

However, when managed carefully, these investments can yield higher returns than buying physical gold due to their potential for capital appreciation over time.

Gold Bullion Funds

These funds invest exclusively in physical bullion such as coins, bars, or ingots made from precious metals such as gold and silver.

Investors benefit from the stability offered by a physically-backed fund while still enjoying potential capital gains through price movements in international markets such as London or New York spot prices for gold bullion products.

This type of fund is suitable for those who want direct exposure to precious metals but don’t want the hassle of managing a physical portfolio themselves or storing valuable assets at home or elsewhere securely.

Closed-End Funds

Closed-end funds are investment vehicles that pool money from multiple investors and invest it according to an established set strategy with specific holdings chosen by professional fund managers.

These managers are responsible for overseeing day-to-day operations within these types of funds, all without having risk associated with direct ownership in individual companies or other entities related to commodities such as oil futures contracts etc.

Closed-end funds allow investors access to different markets including those related to commodities like precious metals.

On the other hand, traditional open-ended mutual funds may not be available due to them being too illiquid or difficult for individual investors to access directly on their own behalf.

This is due to high transaction costs associated with trading these instruments on public exchanges domestically & abroad respectively (e..g COMEX).

Physical Gold ETFs

Physical Gold ETFs are exchange-traded funds that invest in physical gold for the purposes of capital appreciation.

These types of funds offer investors access to the same advantages as investing directly in gold, but with a more diversified portfolio that is spread across multiple different gold holdings.

Physical Gold ETFs are typically run by experienced fund managers who are adept at selecting the right gold investments with desirable returns and minimal risk.

As such, Physical Gold ETFs offer investors a great way to gain exposure to the gold market while diversifying their portfolios.

Additionally, these funds are often more liquid than buying physical gold, making them easier to buy and sell quickly when needed.

Benefits of Investing in Gold Mutual Funds

There are numerous benefits to investing in gold mutual funds.


When you invest in a gold mutual fund, you get exposure to multiple different types of gold investments, such as stocks and exchange-traded funds (ETFs).

This diversification helps spread out your risk and can help you earn higher returns over time.

Professional Management

When you invest in a gold mutual fund, you’re getting access to professional money managers who are experienced with investing in gold.

These professionals have access to information that most individual investors do not have access to, which can lead to better returns on your investments. 

Low Cost

Compared to other forms of investing, such as buying physical gold or ETFs, investing in a gold mutual fund is relatively inexpensive.

Most funds charge minimal management fees and transaction costs, making them more cost-effective than other forms of investment. 


Unlike physical gold or ETFs, which require you to wait before selling them off for cash, with a mutual fund, you can quickly sell off your holdings whenever you need cash without having to wait too long before receiving it back from your broker or dealer.

Liquidity of mutual funds

Tax Advantages

Depending on the type of gold mutual fund that you invest in, there may be certain tax advantages available that could help save you money come tax season.

For example, some funds offer capital gains treatment instead of income tax treatment if they meet certain criteria set by the IRS and other government agencies. 

Easier Access

Investing in a gold mutual fund makes it easier for investors who don’t have the resources or knowledge needed to purchase physical bullion or ETFs directly from dealers or brokers.

With a mutual fund, all the hard work is done by the professionals managing the fund so that all you have to do is sit back and watch your investments grow (or shrink).

Exposure To Different Types Of Gold Investments

A typical portfolio will consist of various types of investments including equities (stocks), bonds, commodities (gold), etc.

But when investing directly into physical bullion or ETFs your portfolio will mostly contain one type of asset class only i.e either stocks/bonds, etc.

But when investing in a gold mutual fund there will be exposure not just to one asset class but also exposure to different types of gold investment such as mining stocks/bullion, etc.

This gives greater diversification, therefore, reducing risk within the portfolio compared to just holding one type.

Lower Minimum Investment Amount

Most traditional Mutual Funds require high minimum investment amounts however gold mutual funds tend not to require very high minimum investment amounts.

This means even smaller investors can benefit from this asset class providing greater accessibility plus potential diversification benefits discussed previously above.

No Storage Costs

One major issue with owning physical bullion/coins is storage costs i.e. paying somebody else securely store this asset.

With owning shares in a gold mutual fund these storage costs are eliminated since these shares are held electronically although they still carry counterparty risks so should be considered prior to investing .


When dealing with physical bullion /coins/bars it’s difficult to understand the true price paid once all associated costs such as shipping/insurance/storage etc., are taken into account.

On the other hand by owning shares within a gold mutual fund investor knows exactly how much he/she paid for each unit plus any associated expenses such as brokerage fees, etc., therefore providing much-needed transparency.

Transparency of mutual funds

Risks Associated with Investing in Gold Mutual Funds

With great benefits comes risks as well. Following are some of the risks associated with investing in gold mutual funds.

High Fees and Commissions

Gold mutual funds often charge high fees and commissions. This can eat away at your return on investment, so it’s important to understand exactly what fees you’ll be paying before you invest.

Many investors find the fees too high for their liking and opt to invest in physical gold instead.

Lack of Liquidity

Gold investments are not as liquid as other assets like stocks or bonds, which means that you may have to wait longer to access your money if you need it.

Additionally, if you do decide to sell your gold mutual fund shares, the price might not be as high as when you originally bought them. 

Low Yields

Investing in gold can be lucrative, but the returns tend to be lower than those of other investments such as stocks or bonds.

If you’re looking for higher yields, then investing in gold mutual funds may not be the best option for you.

Market Volatility

The price of gold tends to fluctuate depending on market conditions and geopolitical events. This means that if the market takes a turn for the worse, your investment could suffer accordingly.

You should always take into account how volatile the market is before making any investments in gold mutual funds or any other asset for that matter!

Inflation Risk

Inflation can erode your returns over time if you don’t keep up with it. Gold is seen as a good hedge against inflation because its value tends to increase when inflation rises.

But this isn’t always the case and there is no guarantee that your investment will perform well enough to offset inflationary losses over time.

It’s important to do your research and understand how different investments are affected by inflation before committing any capital!

A Step-by-Step Guide to Choosing the Right Gold Mutual Fund for You

Step 1: Research Different Types of Gold Mutual Funds

The first step in choosing a gold mutual fund is to familiarize yourself with the different types available.

Gold funds can be divided into two main categories: physical and paper. Physical funds invest directly in physical gold, while paper funds invest in securities that are linked to the price of gold.

Both types of funds have their own advantages and disadvantages, so it’s important to understand the differences before making a decision.

Step 2: Consider Your Investment Objectives

Once you have an understanding of the different types of gold mutual funds available, it’s time to consider your investment objectives.

Are you looking to generate short-term profits or long-term wealth? Are you more interested in capital appreciation or income generation?

By clearly articulating your investment goals, it will be easier to find a fund that fits your needs.

Step 3: Analyze Performance History & Risk Tolerance

Before investing in any mutual fund, it’s important to analyze its performance history and risk tolerance level.

Most mutual funds publish historical data on their websites, which can give you insight into how the fund has performed over time.

Additionally, pay attention to whether or not the fund takes on high levels of rise, this will help ensure that you don’t take on more risk than you are comfortable with.

Step 4: Compare Fees & Expenses

One factor that often gets overlooked when choosing a gold mutual fund is fees and expenses.

Many funds charge management fees as well as other hidden expenses that can eat into your returns if they aren’t taken into consideration.

It’s important to compare fees and expenses across different funds before making a final decision so that you know exactly what kind of costs are involved with each option. 


Investing in a gold mutual fund can be a great way for new investors to get started in investing without having to worry about all the complexities associated with buying physical gold or trading individual stocks/ETFs.

However, it’s important for potential investors to understand all associated risks prior to committing their hard-earned money to a pooled investment vehicle like this one – which is why doing research on different options ahead of time is key!

By taking into consideration factors such as fund size, performance history, fees charged by managers, and portfolio composition – you’ll be well on your way toward selecting an option that works best for both your goals and risk tolerance level! Good luck!

1 Tonne Gold Coin

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