Gold Funds - The Smart Way To Ride Through Turbulent Times

The financial markets are having a tough time

, inflation is on an all-time high, the credit crunch is hurting the business prospects, the stimulus has failed to put the economy on track, the job scenario of the is bleak, and the economy is shedding jobs every quarter- in all this conundrum and doldrums the only thing that has risen like a phoenix is Gold.

After the economies are hit by each wave of recession, the world has witnessed an era of super-inflation or hyper-inflation. Gold which has earned a reputation of acting as a hedge against inflation has been a solace for those who were wise enough to invest a part of their fortune in this precious metal during the heydays.

It is prudent to have 5% to 10% of the total investment in the form of gold. This will not only diversify the investment portfolio of an investor but also act as a hedge against inflation in the long term.

During times of inflation, the money/ cash that an individual hold become less valuable and thus reduces the purchasing power of the individual. But, at the same time if an individual has invested in gold or gold funds, he/she can be sure of the fact that the value they have invested will not come down in the long-term.

Even before the advent of the fiat currency, gold standard was dominant across the economies of the world. Hence, one can safely assert that gold is an international currency. Thus, any investor investing in gold funds or funds that invest in precious metals would be well-off than an investor who invests in the new-age financial instruments. In the face of terrorism and perpetual war, people are inclined towards buying gold as a safety reason.

Consider a scenario, if the currency of country an individual lives in falls drastically, gold will still be linked to international market prices. The demand for gold would always be there even if there are no takers for a particular currency in the international market.

There are three ways in which an individual can invest in gold.

1.By investing in a gold fund

2.By buying gold coins or bars

3.By buying the equity in mining companies.

The third option is actually very far-fetched as rarely a mining company goes public with stock offers.

The other two options are practical and hence can be undertaken. The only difference between buying physical gold and investing in a gold fund (mutual fund) is the convenience. Gold bars and coins in their physical form need to be safeguarded while the units of a gold fund are relatively easier to manage. It is similar to holding units of mutual funds such as DSP BlackRock India T.I.G.E.R. Fund.

by: Nisha Varma

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