A mutual fund uses money pooled from many investors to purchase stocks, bonds, and other assets. The fund is managed by an individual who invests the money according to a specific investment objective and strives to provide investors with profits, known as capital gains. Through an investment in mutual funds, an individual is able to diversify the financial portfolio using only a small amount of capital.
Gold mutual funds often outperform the price of gold when the gold market is strong — they can also underperform when the price of gold recedes. These funds usually trend with the price of gold but tend to move higher and lower than the actual gold price. Shares in a mutual fund tend to be purchased and sold at the current net asset value per share, as the investor desires. Investing in a gold mutual fund is one of the ways for an individual to participate in the stock market with expert management without the personal use of a financial advisor.
So if you want to invest in gold stocks, but aren’t familiar with the geological, economic, and political education necessary to do a well-informed job, then a gold mutual fund might be your best shot.
Investors make money from gold mutual funds through dividend payments, interest, capital gains distributions, and increased net asset values. When the value of the money invested increases, this is called a capital gain. The fund subtracts any losses and allocates the remaining money to investors as a capital gains distribution.
If, after expenses are deducted, the market value of the investment increases, the net asset value increases, as does the price per share.
The net asset value is found by subtracting liabilities from the total value of all the securities held in the fund and then dividing the result by the number of outstanding shares. At the close of each trading day, the net asset value of a mutual fund is calculated.
Investors should be aware that not all gold mutual funds invest only in the gold sector. Other things to research prior to investing in gold mutual funds are expenses, transaction fees, and any cash-out charges.
Next Part: Gold ETFs