Gold Mutual Funds: Meaning, Features, Benefits, Differences

Published on March 24, 2026 | 3 min read

Gold mutual funds are schemes that pool money from investors and invest it in gold ETFs. Instead of buying physical gold or investing in gold derivatives, investors choose to invest in gold ETFs through a mutual fund.

Gold and equity often exhibit a negative correlation; including gold in your mutual fund portfolio improves diversification and reduces overall market risk.

This article explains how gold mutual funds work, the difference between gold funds and ETFs, their features, benefits and more.

Key Takeaways:

Gold mutual funds invest the majority of the money in Gold ETFs.
These funds are suitable for those who want to add exposure to gold in their mutual fund investment portfolio.
They act as a hedge against inflation and market volatility, helping balance the risk in your portfolio.

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Understanding Gold Mutual Funds

Gold mutual funds are open-ended schemes that invest directly or indirectly in gold reserves. When building a portfolio, fund managers focus on gold and related instruments, including bullion, coins, stocks of gold mining companies and gold exchange-traded funds (ETFs).

These funds operate as a fund-of-funds, and their performance is closely linked to the market price of gold.

A fund of funds (FOF) is a pooled investment vehicle that invests in other mutual funds or ETFs rather than directly in stocks or bonds. It offers instant diversification across various asset classes, strategies and geographies through a single investment.

Gold funds allow investors to gain exposure to gold without buying physical gold, offering a convenient way to benefit from gold price movements.

Investors can easily buy or redeem units, making them a liquid investment option. These funds are suitable for those seeking to balance portfolio risk with a low-risk asset while benefiting from potential long-term appreciation.

Key Features of Gold Mutual Funds

Gold mutual funds offer diversification along with a hedge against inflation. Below are key features of gold funds:

Low Minimum Investment

You can start investing with a minimum of ₹1000, allowing investors to gain exposure to gold with a small investment.

Asset Allocation

Gold funds invest in gold ETFs and other gold-related instruments.

Inflation Hedge

Gold prices tend to rise during economic downturns or periods of inflation. These funds provide a hedge against inflation.

No Risk of Theft

As they are stored electronically, there is no risk of theft.

High Liquidity

Units of gold funds can be bought and redeemed easily, offering better liquidity than physical gold.

Benefits of Investing in Gold Mutual Funds

Let’s explore the benefits of investing in gold mutual funds:

Diversification

They allow investors to diversify their portfolios and reduce overall risk. Gold is considered a safe investment during uncertain times.

Cost-Effective

Investing in gold funds helps avoid making charges, storage fees, and high premiums on derivatives.

Easy Entry

There is no requirement for a demat account to invest in gold funds, making them more accessible than ETF investments.

Difference Between Gold Mutual Funds and Gold ETFs

While investing in gold mutual funds and gold ETFs, it’s important to understand the difference between them. Here is what sets them apart:

Feature	Gold Mutual Funds	Gold ETFs
Investment method	They invest in gold ETFs and mining companies	They invest in physical gold
Listed on the stock exchange	Not listed on the stock exchange, they are to be bought from the fund houses	Listed on the stock exchange
Transaction cost	Gold funds include the expense ratio and exit load	Brokerage and taxes only
Liquidity	Liquidity is low compared to Gold ETFs	High liquidity, you can buy or sell during market hours
Pricing	Gold fund prices can be observed through net asset value (NAV)	They are traded on the stock exchange, and prices are updated in real-time
SIP option	SIP is available	SIP not available in ETFs

Things to Consider Before Investing in Gold Mutual Funds

Before investing in gold mutual funds, every investor must consider the following factors.

Investment Objective

Gold is considered a safe asset class for investment. If your objective is to diversify your portfolio, gold funds may be a suitable option.

Historical Fund Performance

Compare the historical performance of gold funds and verify how closely the fund tracks physical gold prices.

Expense Ratio

Check the expense ratio of different gold mutual funds; selecting funds with a high expense ratio can affect overall portfolio performance.

Gold mutual funds are a simple and accessible way to invest in gold without the hassle of holding physical gold, making them an ideal choice for modern investors. The best part is, you don’t need a demat account to invest in it; you can do it by simply choosing any gold fund from the fund houses.

Gold funds provide exposure to gold, which helps in portfolio diversification and risk management during times of volatile market conditions.

About Author

Subhasish Mandal

Sub-Editor

Finance professional with strong expertise in stock market and personal finance writing, he excels at breaking down complex financial concepts into simple, actionable insights. Holding a Master’s degree in Commerce, he combines academic depth with practical knowledge of technical analysis and derivatives.

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About Upstox

Upstox is a leading Indian financial services company that offers online trading and investment services in stocks, commodities, currencies, mutual funds, and more. Founded in 2009 and headquartered in Mumbai, Upstox is backed by prominent investors including Ratan Tata, Tiger Global, and Kalaari Capital. It operates under RKSV Securities and is registered with SEBI, NSE, BSE, and other regulatory bodies, ensuring secure and compliant trading experiences.