Gold has a reputation for being a good hedge against inflation and a profitable investment during a flagging economy. Even as the value of the dollar continues to drop, the price of gold is on a steady rise, yielding investors with positive returns.
If you’ve been following gold prices and looking for alternatives to investing in gold bars or bullion while maintaining positive returns, gold mutual funds could be ideal. Gold funds are more cost-effective than buying gold outright because you can invest fractional amounts, no matter how high gold prices rise.
This guide shares top-performing gold funds that could give your investment strategy a boost.
What to Look for in Gold Mutual Funds
Choosing the right gold mutual fund can be overwhelming, especially if you’re new to mutual funds. Investments in mutual funds are different from investing in physical gold and gold bullion, where you have total control of the asset.
As you evaluate different options, here’s what we recommend looking for in this important asset class:
- Fund holdings: The performance of a gold investment like a mutual fund depends on the assets that the gold fund is holding. Gold funds can hold gold bullion in combination with stock in companies involved in any and all aspects of the gold mining and producing value chain.
- Size of the fund: As a general rule, large gold funds can be a more lucrative investment because their economies of scale allow for lower expense ratios.
- Expense ratio: Mutual funds cost money to manage. The expense ratio takes into account portfolio management, administration, disbursements, and marketing. It’s typically expressed as a percentage of your investment. Naturally, the lower the percentage of your investment, the better.
- Performance: The return on your investment is an indicator of how well a gold mutual fund performs. Another statistic to look at is “alpha,” which is the difference between actual and expected returns.
Benefits of Gold Mutual Funds
Investing in gold can be cost-prohibitive, especially when the price of gold is high. Gold mutual funds, on the other hand, have low minimum investment requirements, regardless of gold prices.
Another benefit of gold mutual fund investments is having diversified holdings in gold-related assets throughout the entire value chain, from exploration and mining to gold bullion and coins.
You can also rely on the expertise of gold mutual fund managers to research and find the best gold investments.
The Top 5 Mutual Funds for Gold
We did the research and uncovered the best gold mutual funds to invest in that have solid historical performance and reasonable management fees.
1. Fidelity Select Gold Portfolio Fund
Topping our list of the best gold mutual funds is the Fidelity Select Gold Portfolio Fund. The bulk of the fund’s assets is common stocks, with 20% of the assets spread across gold mining operations and physical gold like gold bullion.
Diversification is key with this gold fund investing in domestic and foreign stock markets. The fund’s asset portfolio currently holds $1.3 billion with a net expense ratio of .76% and an average five-year return of 6.73%.
What we like about Fidelity Select Gold Portfolio Fund
Many investors looking for a good investment are concerned about a fund’s reputation, and since this gold fund has been around since 1985, it has credibility and longevity. The size of the asset portfolio is an additional security measure that helps investors feel more secure about the fund manager’s ability.
What we don’t like
In addition to the expense ratio, this gold fund charges a front-end sales load (i.e., commission) of 5.75%, making some investors look for more affordable investment vehicles.
According to U.S. News & World Report, the Fidelity fund ranks in the top 15% of precious metal funds. The review also points to the longevity and trustworthiness of Fidelity.
2. Allspring Precious Metals Fund
Designed to grow wealth in the longer term, the Allspring Precious Metals Fund was first issued in 1998 by Wells Fargo. With a total portfolio size of $379.8 million, this fund is respectably sized.
This gold mutual fund touches on a variety of activities in the value chain, including exploration, mining, and processing, with a significant stake in countries with emerging markets. Dividends are disbursed annually, and an expense ratio of 1.84%
What we like about Allspring Precious Metals Fund
Investing in gold with a reputable company is imperative, and we like that this gold fund has brand-name recognition being under the Wells Fargo umbrella. The fund has since separated itself from the behemoth bank by changing its name from the Wells Fargo Precious Metals Fund to Allspring.
In addition to the brand reputation, the gold fund has had a consistent 6.8% five-year return.
What we don’t like
Compared to other gold mutual funds, this gold fund is considered high-risk. Risk is a relative rarity for a gold investment, where investors are often willing to sacrifice double-digit returns in exchange for asset classes that are “safer.” However, if you have a somewhat higher risk tolerance or more aggressive financial goals when you invest in gold, this gold mutual fund could be right up your alley.
According to Morningstar Ratings, the Allspring Precious Metals Fund ranked in the top 15% of gold mutual funds in the past year with a 9.36% return. It currently has a four-star rating, falling just shy of a perfect record.
3. Axis Gold Fund
With a 12.5% return in 2022, Axis Gold is respected among gold funds. It consistently makes the list of the best gold mutual funds, including ours. The goal of the Axis Gold Fund is to generate returns consistent with its corresponding Axis Gold exchange-traded fund.
Like most gold funds, Axis Gold Fund offers the average investor low-cost holdings, transparent pricing, and the ability to invest in gold without having to hold physical assets.
What we like about Axis Gold Fund
You can get started investing in Axis Gold Fund for around $60 (or 5,000 Rs when measured in other currencies), which makes this gold fund very attainable for gold investment. Axis Gold Fund also has a relatively low expense ratio of 0.6%, and there’s no demat account required.
What we don’t like
Like the Allspring Precious Metals fund, the Gold Axis Fund is considered relatively high risk, which could give many investors pause before investing.
There’s been a lot of favorable coverage about Axis Gold Fund from top publications. Fincash shared the impressive long-term performance of Axis Gold Fund and advised that even short-term investors can have returns of 2.5% in six months.
4. Gabelli Gold Fund
Another fund that helps investors meet a long-term investment objective is the Gabelli Gold Fund.
Gabelli Gold Fund boasts one of the higher five-year returns at 9.2% and a modest expense ratio of 1.48%.
What we like about Gabelli Gold Fund
The strength of a fund is typically based on the performance of the asset classes, and this fund is managed by someone who seeks out undervalued stocks and gold companies with the potential for growth. Though somewhat speculative, this approach has tended to yield better-than-average results.
What we don’t like
Even though the expense ratio isn’t the highest, it is relatively high compared to similarly sized funds. The historically strong performance can potentially justify this ratio, but it’s something for investors to be aware of.
Morningstar gives Gabelli Gold Fund four out of five stars. The ding came from a higher expense ratio relative to the fund’s returns.
5. USAA Precious Metals and Minerals Fund
Investors with investment objectives that include a hedge against inflation and market volatility have flocked to the USAA Precious Metals and Minerals Fund. The fund blends net assets from foreign and domestic gold companies, including mining operations, and other precious metals besides gold.
The current size of the portfolio under management is $679 million, with a five-year return of 8.18% and an expense ratio of 1.12%.
What we like about USAA Precious Metals and Minerals Fund
Adding other precious metals to a gold fund can help with diversification, as not all precious metals will track the same as gold prices. The blend of foreign and domestic operations can also help balance risk without sacrificing performance.
What we don’t like
Though this fund boasts solid performance, it only has a three-star rating from Morningstar. However, every investor is different, and what causes Morningstar to give this fund only three stars instead of four or five stars might not be as relevant to other investors.
Despite a slightly unfavorable review from Morningstar, other reviewers have ranked the fund highly. Investors who hold the fund are bullish, and they share that they believe in this fund as a hedge against inflation, volatility, and foreign conflicts.
How to Invest in Gold Mutual Funds
Whether you are investing in a gold mutual fund or a fund for another precious metal, the process is the same. The way it works is the same way as buying stock from a brokerage firm.
Average Returns on Gold Mutual Funds
The average annual return on gold as an investment has averaged approximately 7.78%, not accounting for inflation. Some sources point to gold returns at as low as 3%, but returns on gold mutual funds can be significantly higher, with average returns ranging from 8% to 20% consistently.
Paying Taxes on Profits from Gold Mutual Funds
Profits from capital gains resulting from investment in gold mutual funds are taxed similarly to other investments. Depending on your income tax bracket, tax rates range from 15% to 20%. By contrast, if you invest in gold via gold coins, you’ll have a higher tax burden, topping 28%.
When you invest in gold through a gold fund, you can also take advantage of indexation benefits, which is when you can adjust the purchase price of gold funds against inflation. As a result, a higher gold price at the time of investment can lower your tax burden.
Gold Mutual Funds Versus Gold ETFs
Short for gold exchange-traded funds, a gold ETF invests in physical gold and is traded on equity markets.
There is some overlap between gold funds and gold ETFs. While a gold fund invests in physical gold, syndicates, and mining companies, the fund can also invest in a gold ETF to track the price of gold.
Gold ETFs are sold on the stock market and often have lower expense ratios than gold mutual funds. However, with a gold ETF, you have to buy a whole share. By contrast, a gold mutual fund allows you to invest in gold in fractional shares, making it more cost-effective than a gold exchange-traded fund.
The Bottom Line
If you’re looking for a stable investment opportunity with the potential for lucrative returns, investing in gold could provide an ideal path to meet your financial objectives. For questions about gold investments and other assets, contact Learn About Gold.