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What are Gold funds and what are the benefits?

What are Gold Funds and what are its benefits?

 

Gold funds are unique type of mutual funds, through which investors can invest directly or indirectly in Gold Reserves. They can invest in the gold producing stocks, mining company stocks or in physical gold. Gold funds are the most convenient asset to invest, without the risk of theft or paper work as they are in digital form. This fund is kind of an open ended investment, where investor can issue or redeem at any point of time based on the units which they hold. However, their price directly depends on the metal (gold). Some investors use gold funds to hedge and diversify their portfolio and protect against uncertain economic condition. Many investors diversify around 10 to 20 percent of their portfolio by investing in gold funds. Golds funds are regulated by the SEBI and it is ideal for investors who are risk averse.

 

Types of gold funds available across globe for investors:

Gold Mining Funds:

In this, funds are invested in stocks of the mining companies and returns depends on the performance of these stocks. However, investment does not get affected due to any fluctuation in economy as gold price is affected mainly due to the fluctuation in demand and supply of gold. Gold exchange traded funds were first introduced by Benchmark Asset Company in India. This funds basically invest in the gold through Demat account. Returns and value of the investments totally depend on the price of gold. Investment in Gold Fund of Fund is same as exchange traded funds as in this, investments are made in particular unit of the Exchange traded funds without opening the Demat account.

 

Main purpose of Gold Funds:

Main purpose for investors to invest in gold funds is to grow their investment value and create wealth in whatever period the investment is made with protection against the market fluctuation. Price of Underlying asset varies according to change in demand of gold and at the time of maturity returns are calculated on current gold price. If gold price is increased, it gives more returns at the time of redemption.

 

What are tax charges for Gold Funds?

Normally, the tax which is charged on the Gold Jewellery is applicable to the Gold Mutual Funds schemes. But, taxes also vary according to the tenure. If investments are made for less than three years than revenue is added to the total gross income and considered as short term. But if investments are made for more than three years than 20 percent tax is applicable with indexation norms and CESS charges. However, if capital gains is through exchange traded funds (Gold ETFs), tax exempt is given. No TDS is applicable to Golds Mutual funds. During the time of buying or selling of funds, same tax is applicable as on Gold Jewellery.

 

Benefits of Gold Funds:

Flexibility in investment:

Gold funds allows investors to invest according to their convenience, comparing to the physical purchase of the gold. Investment can be made as low as Rs 500 and even small income class can also invest in this fund rather than purchasing physical gold which costs higher than these funds and gives flexibility. Gold mutual funds are one of the safest investment as these funds are regulated by Security exchange board of India and they continuously monitors the performance of this type of funds so that investors can analyse their future returns. Gold Funds are also safer than holding physical assets (Gold) as it is in de-materialized form.

 

Highly liquid:

Gold funds are high liquid funds as investors can redeem them in short term and are also protected against the uncertain economic situation. However, during market hours only, it can be buy or sell and net asset value of previous day is considered at the time of selling and trade is offset in one or two working day. To balance the overall portfolio, investor may always choose gold funds. Gold price is not directly affected to one investor’s overall investment and stocks in which investment is made. Gold fund is considered as one of the safest investment with good returns.

 

Some finest Gold Mutual Funds in India:

Axis Gold Funds has given return in a year up to 26% and for 3 to 5 year period 4%.
SBI Funds has given returns up to 22% in a year and 6% in 5 years.
HDFC Gold Fund has given returns of 22% in a year and 6% in 5 year period.

 

 

 

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What are liquid funds? Find more

What are liquid funds? Find more

Liquid funds are also debt funds that lend for a period of up to 91 days. These are the safest funds among all other schemes, being short-term. It is appropriate for putting money aside for emergencies. There is negligible risk of loss if one invests for minimum one month. These are known for giving up to 50% and at times even 100% higher returns than the savings bank account. These have low annual fee ranging from 0.30%- 0.70%

 

Portfolio with liquid funds fetches:

No Lock-in Period – By the name, it suggests they have no lock-in period and give quick access to cash by redemption.

Quick Withdrawals – Liquid fund withdrawals can be made within 24 hours.

Lowest Interest Rate Risk – These funds mainly invest in fixed income securities which have a short maturity period, hence have one of the lowest rate risk as compared to others.

Tax Benefits – Liquid Funds offer valuable tax benefits.

Comparatively Good Returns – Liquid funds offer an average return of about 8% per annum.

For instance,

Franklin India Liquid Fund is presently giving a return of +7.04% p.a.

Tata Liquid Fund is presently giving a return of +6.91% p.a.

Edelweiss Liquid Fund is presently giving a return of +6.86% p.a.

 

 

Comparing and Contrasting:

Current Fixed Deposit Rates are ranging from 3.00%-6.75% p.a. covering all classes of investors.

Comparing these with the previously mentioned Credit Risk Fund and Liquid Fund, we can learn that these funds give more returns as compared to the Bank FDs.

 

 

Credit risk funds. Should you invest?

 

 

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Credit risk funds. Should you invest?

Credit risk funds. Should you invest?

Credit risk funds are debt funds that lend not less than 65% of their portfolio in the lower rated instruments (less than AA rated papers). The borrowers have to shell out higher interest charges to compensate for their lower credit rating, which translates into a higher risk for the lender due to an increased possibility of default. Although, these funds lend mostly for short duration. They are still one of the riskiest in the category.

These funds are ideal for an investment horizon of at least 3-5 years. There is a high probability of incurring losses if held for short term.These funds tend to deliver higher returns than Bank Fixed Deposits thereby involving higher risk.

 

Portfolio with Credit Risk Funds fetches:

Higher Return : These funds take high risks and invest that money in the low risk instruments and the returns generated are higher as compared to other funds.

Tax Benefits: These funds are tax-efficient as the Long Term Capital Gains (LTCG) is flat 20% where as if the assessee is in 30% slab still LTCG will be taxable at 20%.

Extended Supervision: In these funds, fund managers play a very significant role in obtaining remarkable returns. Credit rating alone is not the only basis of decision making. There are various parameters such as the company’s scope of expansion, its potential and business model.

For instance,

ICICI Prudential Credit Risk Fund is presently giving return of +8.64% p.a.

Kotak Credit Risk Fund is presently giving return of +7.44% p.a

HDFC Credit Risk Fund is presently giving return of +7.55% p.a

 

 

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