A gold mutual fund offers a way for an individual to invest in gold, taking advantage of the lucrative possibilities of the precious metal. When economic times are tough and the dollar loses value, the gold price increases. Investors can buy gold coins, gold jewelry or gold bullion to get their share of gold or they can opt to invest in a gold mutual fund backed by physical gold.
Gold mutual funds are less expensive and do not have the storage requirements of gold coins, bullion, or jewelry. Investors pool their money with others and an investment advisor makes the asset purchasing decisions and manages the fund. The type of gold mining companies and gold backed-investments to make and when to sell these are decisions based on the goals of the fund.
The role of the fund manager is to provide returns to shareholders by increasing the value of the mutual fund. Gold mutual funds allow investors to achieve a level of diversification not possible when investing the same amount of money into individual gold stocks. The wide variety of bonds and stocks within a fund reduce its volatility.
The more diversified and less volatile the fund, the less risk that the investor will lose money. Investors can find gold mutual funds that are highly rated by reading financial magazines, doing online research, or reviewing Morningstar ratings reports. Once these have been identified, the investor should read the prospectus of each fund.
Different mutual funds have different required minimum investments, so this is another area to research. Once the individual has invested in a gold mutual fund, he or she can take advantage of the rising price of gold while minimizing risk. The portfolio will also be further diversified due to the inclusion of this type of fund, a practice recommended by most financial experts.