Gold mutual funds deliver 23% return in 6 months. What should investors do?
Thu April 18 2024
Gold mutual funds gave an average return of 22.57% in the last six months, data crunching by ETMutualFunds showed. There were 14 gold funds that completed six months in the market. SBI Gold, the topper in the category, gave 24.13% return in the last six months. Quantum Gold Saving Fund gave 23.74% return in the same period.
HDFC Gold Fund, the largest scheme in the category based on assets managed, gave 23.15% return in the last six month period. DSP World Gold FoF, the oldest fund in the category, gave 16.60% return in the last six months.
Motilal Oswal Gold and Silver ETFs FoF and Edelweiss Gold and Silver ETF FoF gave 21.71% and 19.86% returns respectively in the said period.
Gold is shining once again. The prices of gold are on an uptrend amid the geopolitical tensions. “In the 2001-2011 period, gold bullion price rose by 644% from a closing low of US$256/oz in April 2001 to a closing high of US$1,900/oz in September 2011,” according to a report by Jefferies.
In the last one year period, these schemes gave an average return of 15.46%. SBI Gold Fund offered the highest return of 18.72%. UTI Gold ETF gave 18.16% return in the last one year.
In the last three year and five year horizon, gold funds gave an average return of 12.91% and 15.93% returns, respectively.
“Gold is up by 29% since early October and by 18% since mid-February,” said the Jefferies report.
Gold funds are benchmarked against Gold-London Bullion Market association (LBMA), Gold-India, Gold-London AM (INR), and FTSE Gold Mines. Gold-London AM (INR) gave 22.05% in the last six months. Note, the data for other benchmarks was not available.
So if you are interested in investing in gold funds, what is the outlook for gold funds? “Gold hit record highs of USD2,365/oz on 9 April. The rally has been fueled by a powerful cocktail of safe-haven and hedge fund purchases, prompted by record-high equities and sticky inflation. This, in turn, is triggering heavy momentum buying. Gold has reached new highs despite a reduction in rate cut expectations from earlier in the year. Gold is historically sensitive to real rates, and while there has been a notable disconnect in this relationship, we expect real rates to weigh on gold later in 2024,” according to the Gold Outlook by HSBC Global Research.
“The rise in geopolitical risks serve to increase the safe-haven demand for gold, which has a reputation as a tried and trusted asset in this regard. We believe geopolitical risks, which by any metric have escalated in the last couple of years – as well as trade frictions – have played an important, if opaque, role in sustaining gold prices. This influence will likely continue and while gold prices may fall from what we believe are inflated levels we believe geopolitical risks will sustain gold at higher levels than would otherwise be the case,” said the research report.
“A number of bedrock factors, however, including geopolitical risks and safe haven and hedge buying related to financial market uncertainty, sticky inflation, as well as central bank demand will likely sustain gold at what are still historically high levels. Also growing concern over mounting fiscal deficits may keep gold supported at higher levels than would otherwise be the case,” added the report.
Gold is used as a hedge against economic uncertainties and as a tool for diversification of the portfolio. Gold tends to outperform all other assets when there is economic turmoil.
Gold and silver funds are used for portfolio diversification. If you have a large portfolio, you can earmark a small percentage of the total portfolio (advisors say around 10%) to invest in gold and/or silver. If you are starting out or you have a very small portfolio, you can give it a miss. Investors should remember that these funds wont offer you greater returns year after year. They are supposed to offer you diversification and add stability to your portfolio in times of economic turmoil.
Source: https://economictimes.indiatimes.com/