2023-06-23 21:13:57
How do gold mutual funds work?
The operation of gold funds is similar to that of other investment funds. That is, they operate in the form of a condominium — in which several investors invest through the purchase of quotas.
The investor acquires shares of the fund, becoming a shareholder. Invested equity allocation decisions are not made by each individual, but by a professional manager. He is responsible for managing the investments.
Each fund follows specific rules regarding investments. In addition to gold, there may be some funds that also link their profitability to the dollar.
Why invest in gold mutual funds?
Those who invest in gold generally seek to protect themselves from market fluctuations, the possible devaluation of the Real or the loss of equity due to financial crises.
Therefore, the objective of funds is not necessarily to obtain profitability. They have one more protection function (hedge) in relation to other investments that you may have in your portfolio.
For example, your gold investments have a low correlation with the stock market. Thus, they can offer balance for the portfolio in periods of low stocks. This is one of the main objectives of being exposed to changes in the price of gold in the international market.
What are the advantages of gold funds?
Investing in gold mutual funds has some advantages. Check them out below:
Gold is one of the most valuable metals in the world and has intrinsic value. For this reason, it can be considered a store of value, especially in times of crisis — in which its quotation tends to increase in value.
So when the stock market declines, the price of gold can rise. In addition, gold can be used as a hedge to protect against exchange rate fluctuations.
portfolio diversification
Gold funds can also help the investor to diversify the portfolio and better manage the risk of losses. As you have seen, due to the low correlation with other investments, it is possible that gold is useful to minimize possible impacts or losses.
Therefore, it is common for investors to seek to have a percentage of their equity linked to gold to balance the portfolio. After all, as you already know, this can be an efficient strategy in times of lack of control in the financial market.
Ease of investing in gold
Gold funds can be considered one of the simplest forms for investors. This is because the direct purchase of gold is not very practical and has higher costs.
The other way to invest in gold would be directly in the futures market. But, due to its complexity, it may not be suitable for beginners or conservative investors.
Thus, anyone who would like to be exposed to the price of gold can find in gold funds a way to carry out investments in a simpler way.
What are the disadvantages of investing in gold?
So far you have known what a gold investment fund is and its advantages. On the other hand, there are disadvantages that need to be mentioned. Check them out below:
Not a passive source of income
If you want to invest in gold, it is worth remembering that funds of this type are generally not focused on generating passive income for shareholders. The main objective is to allow diversification and protection from market fluctuations.
The price of gold is not always the same. Its quotation may change according to economic events, which cannot be controlled. Its price tends to fall when the market is optimistic and assets are valued. So keep that in mind when deciding.
What costs are involved?
One of the things you need to know about gold mutual funds is their cost. In general, they charge an administration fee — which varies by fund.
It is also necessary to find out about the charges for buying or selling quotas. In addition, there may be incidences of Income tax in the quota-eater modality.
Who is the gold fund interesting for?
You saw that investment funds in gold can be interesting for those who want to diversify their portfolio and protect their assets – minimizing market-related risks.
However, it is worth noting that gold is a volatile asset. Therefore, there are risks when making investments linked to it. And, if you are conservative, know that investment funds do not have coverage of the Credit Guarantee Fund (FGC).
Thus, funds of this type may be more interesting for investors who are moderate or bold. And who seek a protection strategy against market fluctuations or currency devaluation.
Keep in mind that they may not be the best choice for those looking to earn passive income over the long term. For this case, there are other types of funds that are better suited.
Now you know everything you need to value gold mutual funds. To find out if it’s worth having a gold investment fund in your portfolio, consider your investor profileyour strategies and your financial goals.
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