Buying gold does not always mean choosing jewellery, coins or bars. If your purpose is investment, gold mutual funds offer a way to gain exposure to gold prices without storing the metal yourself.
Before choosing a fund, understand what it holds, how its costs affect returns and how you can access your money. These details also help you compare it with a gold ETF or physical gold.
Table of Contents
What is a gold mutual fund?
In India, a gold mutual fund commonly refers to an open-ended fund of funds, or FoF, that invests predominantly in units of a gold exchange-traded fund, or ETF.
The underlying gold ETF seeks to track domestic gold prices. You hold units of the gold mutual fund, which holds ETF units on your behalf.
This differs from a fund investing in gold-mining companies. Shares in those businesses carry company and equity-market risks, alongside any influence from gold prices.
Sources: SEBI Investor, “Fund of Fund” and “Mutual Funds for Intermediate”
Key Takeaways
- Gold mutual funds commonly provide gold exposure by investing in gold ETF units.
- A gold fund of funds can generally be held without a demat account and may offer SIP facilities.
- Returns depend on the underlying investments, expenses and how closely the fund follows gold-price movements.
- Gold can add another asset class to a portfolio, but its value can fluctuate.
- Compare costs, redemption terms and taxation before choosing between a gold mutual fund, gold ETF and physical gold.
How do gold mutual funds work?
When you invest in a gold fund of funds, the scheme uses the money to purchase units of its underlying gold ETF, according to its investment mandate.
The ETF provides exposure to domestic gold prices. Changes in its value flow through to the FoF’s net asset value, or NAV, after accounting for the FoF’s expenses and other holdings.
You receive units based on the applicable NAV. When you redeem, those units are valued at the applicable redemption NAV, with any exit load deducted.
A gold mutual fund unit does not automatically represent one gram of gold. Its value depends on the scheme’s NAV.
Sources: SEBI Investor, “Fund of Fund”
A gold mutual fund example
Suppose ₹10,000 is allotted to units of a hypothetical gold mutual fund at a NAV of ₹25. You receive 400 units.
The value changes with the NAV:
| Detail | NAV rises | NAV falls |
| Amount allotted to units | ₹10,000 | ₹10,000 |
| Purchase NAV | ₹25 | ₹25 |
| Units held | 400 | 400 |
| Assumed later NAV | ₹28 | ₹22 |
| Value of units | ₹11,200 | ₹8,800 |
| Gain or loss | ₹1,200 | −₹1,200 |
The example excludes applicable transaction levies, exit load and investor-level tax. The assumed NAVs illustrate the calculation rather than predict returns.
The figures shown are for illustrative purpose only.
Gold ETFs and gold funds of funds
These are two ways to access gold through mutual fund schemes, with different transaction arrangements:
Gold ETFs
A gold ETF seeks to track domestic gold prices and primarily holds physical gold meeting prescribed standards. Retail investors generally buy and sell its units on a stock exchange through a demat and trading account.
The exchange price can differ from NAV, so the available buying and selling prices matter when placing an order.
Sources: SEBI Investor, “Understanding Exchange Traded Fund” and “Mutual Funds for Intermediate”.
Gold funds of funds
A gold FoF invests in gold ETF units. You can generally purchase or redeem its units through the mutual fund without opening a demat account.
This structure accommodates conventional mutual fund transactions, including SIPs where offered. It also adds a layer of expenses beyond those of the underlying ETF.
Sources: AMFI, fund-of-funds guidance
What affects gold mutual fund returns and costs?
Gold mutual fund returns are linked to the performance of their underlying investments. They do not offer a fixed interest rate.
Before comparing schemes, understand these costs and differences:
- Underlying ETF expenses: These are reflected in the ETF’s NAV and affect the value of the FoF’s investment.
- FoF expenses: The gold mutual fund also incurs its own operating expenses.
- Cash holdings and tracking differences: Expenses, cash balances and transaction timing can cause returns to differ from movements in gold prices.
- Exit load: A charge may apply if you redeem within the period specified by the scheme.
A FoF’s displayed expense ratio should not be read as the only cost affecting its returns. Review the disclosures for both the FoF and its underlying ETF.
Direct and regular plans of the same FoF follow the same investment objective and portfolio, but their expenses differ. Direct plans exclude distributor commissions and have a lower expense ratio than the corresponding regular plan.
Sources: AMFI, fund-of-funds expense guidance and “Direct Plan”; SEBI Investor, ETF guidance.
What role can gold play in a diversified portfolio?
Gold adds an asset class whose performance can differ from equity and debt. This can help reduce dependence on one part of the market.
Its role should be considered alongside your existing investments. Count gold exposure held through ETFs, mutual funds and multi-asset schemes before adding another fund.
Diversification does not require holding several funds that all depend on gold prices. Nor does gold necessarily rise whenever equity markets fall or inflation increases.
Source: SEBI Investor, “Factors to Consider Before Investing”, applied to asset allocation and gold exposure.
What are the benefits and risks of gold mutual funds?
Gold mutual funds make gold exposure accessible through the mutual fund format, with costs and market movements to consider.
Benefits
The main benefits concern how you invest and hold the investment:
- No personal storage: You do not need to store jewellery, coins or bars.
- Regular contributions: SIPs, where available, let you spread purchases across time.
- No demat requirement for conventional FoF holdings: You can invest through a mutual fund folio.
- Investment records: Account statements show your units, transactions and holding value.
Risks and limitations
The convenience of the structure does not remove investment risk:
- Gold-price fluctuations: A fall in gold prices can reduce the fund’s value.
- Concentration: A dedicated gold fund remains focused on one asset class.
- Expenses: Costs at the FoF and underlying ETF levels affect returns.
- Access conditions: Exit loads and redemption processing matter when you need the money.
Sources: AMFI, FoF and SIP guidance; SEBI Investor, investment-risk and ETF guidance.
Who should consider gold mutual funds?
Gold mutual funds may be worth assessing if you want gold exposure within an investment portfolio and prefer mutual fund transactions to exchange trading.
To choose a scheme, review:
- Its investment mandate: Confirm which ETF or ETFs it holds.
- Your existing exposure: Check how much of your portfolio already depends on gold.
- Costs: Consider the FoF’s expenses, underlying ETF expenses and exit load.
- Performance: Compare the same plan and option over matching periods against the stated benchmark.
- Risk and access: Read the latest Riskometer and redemption terms alongside your goal.
Recent returns alone do not establish suitability. Money needed for an imminent payment requires a separate assessment of fluctuations and access.
Sources: SEBI Investor, “Factors to Consider Before Investing”; AMFI, direct-plan and FoF guidance.
How to invest in gold mutual funds
Once you have selected a suitable gold fund of funds:
- Complete or validate KYC: Ensure your required identity, address and bank details are in place.
- Choose the plan and option: Check the available direct or regular plan and investment options.
- Select the contribution method: Choose a one-time investment or an SIP, where offered.
- Check the transaction terms: Review minimum amounts, exit load and applicable NAV rules.
- Submit and verify: Complete the payment process and check the allotment confirmation.
You can invest through the fund house’s supported channels or a registered mutual fund distributor.
Sources: SEBI Investor, “Know Your Customer” and “How to Invest”; AMFI, direct-plan and SIP guidance.
How does a gold SIP work?
A gold SIP is a method of investing a fixed amount regularly in a gold mutual fund. Each instalment purchases units at the applicable NAV. The same contribution buys more units when NAV is lower and fewer when it is higher.
This can help you maintain a contribution schedule. It does not guarantee a lower average purchase cost than a lump sum, a profit or protection from losses.
Source: AMFI, “Systematic Investment Plan”, including rupee-cost-averaging guidance.
Gold mutual funds vs gold ETFs vs physical gold
The suitable route depends on whether you want an investment holding, exchange trading or physical possession:
| Factor | Gold mutual fund/FoF | Gold ETF | Physical gold |
| What you hold | Units of a fund investing in gold ETFs | Units of a gold-tracking scheme | Jewellery, coins or bars |
| Buying and selling | Mutual fund transactions at applicable NAV | Exchange transactions at available market prices | Through a seller or buyer |
| Demat account | Generally unnecessary for folio holdings | Required for retail exchange trading | Not required |
| Regular investing | Conventional SIPs may be available | Periodic exchange purchases depend on trading arrangements | Repeated physical purchases |
| Costs to assess | FoF and underlying ETF expenses; exit load | Scheme expenses, brokerage and bid–ask spread | Purchase premium, jewellery-making charges, storage and resale deductions |
| Main purpose | Gold exposure through mutual fund transactions | Gold exposure through exchange trading | Investment, personal use or gifting |
A fund holding does not serve the same purpose as jewellery you intend to wear or gift. For investment comparisons, consider costs, access and taxation together.
How are gold mutual funds taxed?
For resident individuals, the following treatment generally applies to conventional gold FoFs and listed gold ETFs that do not qualify as specified mutual funds:
| Investment | Short-term holding period | Tax on short-term gains | Long-term holding period | Tax on long-term gains |
| Unlisted gold mutual fund/FoF units | 24 months or less | Applicable slab rate | More than 24 months | 12.5%, without indexation |
| Listed gold ETF units | 12 months or less | Applicable slab rate | More than 12 months | 12.5%, without indexation |
Surcharge and cess may also apply. Tax is calculated on the gain rather than the entire redemption or sale value.
For SIPs, assess the holding period separately for each instalment. The ₹1.25 lakh annual LTCG threshold applicable to qualifying equity investments does not apply to gold funds under these rules.
The current specified mutual fund definition focuses on funds investing more than 65% of their proceeds in debt and money market instruments, and qualifying funds investing in those funds. Check the actual scheme classification, particularly for products combining different asset classes.
Sources: Income Tax Department, Income-tax Act, 2025, Sections 2(101), 76, 197 and 198; capital-gains guidance.
The tax information in this article is based on prevailing laws at the time of publishing the article and is subject to change. Please consult a tax professional or refer to the latest regulations for up-to-date information.
Explore gold exposure within Bajaj AMC’s multi-asset approach
You can also hold gold exposure within a fund that invests across several asset classes. Bajaj Finserv Multi Asset Allocation Fund combines equity, debt and money market investments with gold ETF exposure under its scheme mandate.
It is an open-ended hybrid scheme, rather than a dedicated gold mutual fund. Its performance depends on the combined portfolio, so it should not be assessed as a substitute for a fund focused on tracking gold.
Review its latest allocation to understand how much gold exposure it contributes to your portfolio, along with its Riskometer, expenses and redemption terms.
Sources: Bajaj AMC, official Bajaj Finserv Multi Asset Allocation Fund page and Scheme Information Document.
Conclusion
Gold mutual funds offer gold exposure without requiring you to buy and store the metal. Understanding the FoF structure, costs, SIP method and taxation helps you compare them with gold ETFs and physical gold. Before deciding how to invest in gold mutual funds, consider your existing gold holdings, payment timeline and comfort with price changes. Choose the route that fits the role you want gold to play in your portfolio.
FAQs
Are gold mutual funds stable investments?
Their NAV can rise or fall with the underlying investments. Gold exposure does not make a mutual fund a fixed-return or capital-guaranteed investment.
Can I invest in gold mutual funds through an SIP?
Yes, where the scheme offers an SIP facility. Check its minimum contribution, available frequency and registration terms.
Do I need a demat account for a gold mutual fund?
A conventional gold FoF can generally be held through a mutual fund folio without demat. Retail exchange trading in gold ETFs requires a demat account.
Does one gold mutual fund unit equal one gram of gold?
No. A FoF unit is valued through the scheme’s NAV. Do not apply an underlying ETF’s unit-to-gold relationship to the FoF’s units.
How soon can I redeem gold mutual fund units?
An open-ended gold FoF generally accepts redemption requests on business days, subject to scheme terms. SEBI’s standard timeline for transferring redemption proceeds is three working days, with specified exceptions. Check any exit load before submitting the request.
Which is better, a gold mutual fund or physical gold?
That depends on your purpose. A gold mutual fund provides investment exposure, while physical gold can also be used as jewellery or a gift. Compare costs and access conditions when choosing for investment.
How should I compare gold fund performance?
Use matching periods and the same plan and option. Compare returns with the stated benchmark and consider expenses and the performance of the underlying ETF.
What is a gold NFO?
A gold NFO is the initial subscription offer for a newly launched gold-related mutual fund scheme. Read its objective and structure to establish whether it is an ETF, FoF or another type of fund. An initial unit price does not, by itself, make the investment inexpensive.
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