Gold Fund of Funds is an option you can explore if you want to avoid the hassle of opening a demat account and trading on the exchanges.
Gold Fund of Funds only invest in Gold ETFs, it must be emphasised, managed by their own company/affiliates.
There is no entry load.
But, your expenses while investing in a Gold Fund of Funds can turn out to be slightly higher than those you incur while investing in a Gold ETF. More on that later.
All you have to do is to choose the Fund of Funds that has a good track record and which is under an expert manager.
As a Gold Fund of Funds investor, you can avail the advantage of using the SIP route (Systematic Investment Plan). Investments can be gradual, thanks to the availability of this option.
You can also choose to exit the fund either in full or through the Systematic Withdrawal Plan.
In a fund of funds, you can start with a minimum investment (say Rs 5,000, depending on the fund you have chosen), and then continue investing in small multiples (say Rs 1,000, again depending on the fund you have chosen), via the SIP route.
Keep in mind the fact that for Gold Fund of Funds (FoFs) an exit load of 1% - 1.5% will be charged if units are sold within one year of purchase.
As for fund management charges, investments in Gold Fund of Funds, like we mentioned earlier, are usually slightly more expensive than those in Gold ETFs, but generally the difference is only in the range of 0.5% - 0.75%.
Redeeming Gold Fund of Funds is similar to redeeming Mutual Funds. It can be done during trading hours. The closing NAV (Net Asset Value) of the fund of funds is calculated based on the price of gold the previous day.
When it comes to taxes, if you hold Gold Fund of Funds for more than a year, you pay a long-term capital gains tax of 10% without indexation or 20% with indexation, whichever is lower, on the profits made.
Gold Fund of Funds held for less than a year attract short-term capital gains tax. The profits are added to your annual income and taxed according to the income bracket you fall under.