What are gold mutual funds?

Introduction.

Gold mutual funds can be defined as those funds that have an objective related to gold set out in the prospectus that offers. It can also be explained as mutual funds that are invested in companies that deal in mining, distribution, and processing of gold in order to pursue capital appreciation. They are usually viewed as specialty funds due to their focus on gold mining stocks, even though some of them own small amounts of gold bullion. Most of gold mutual funds portfolio have exposure to other minerals such as platinum, silver, and metal based mining stocks, but they do concentrate mostly on gold.

A high percentage of up to 65% of the of the total assets of most prominent companies such as in South Africa and Australia are invested:
(1). in the securities of companies that are involved directly or indirectly in the mining business, fabricating, processing, distribution or any way that they deal in the minerals mined.
(2). in the bullion of silver, gold and platinum.
The rest 35% of the total assets may be invested in the securities of firms that derive part of their gross revenue from mining, fabricating, processing, distribution, mining business or in any way that they deal in other natural resources.

Part of the gold mutual funds may be invested in foreign domestic companies that have any size of capitalization that is large, medium or small. At least 25% of the assets these companies should be invested in Natural Resourses Companies. Gold mutual funds investments are usually concentrated in foreign secUrities and smaller companies mining of precious minerals. In an overall view, gold mutual funds are the more speculative and riskier funds than other funds.

Reason why firms invest in gold invested mutual funds rather than bullion:
(1). Mutual funds are flexible in that they can be sold or bought on any business day of stock markets. Gold mutual funds shares can also be held in your brokerage account or directly with the fund company. With mutual funds, there is no need for storage as in billions. Shares are usually redeemed safely on your request without any liquidity issues as it occurs with bullion.
(2). The other reason is that gold mutual funds are professionally managed and have uncorrelated performance to stock market indexes. Their price moves are known to correlate well with prices of gold bullion.

Choosing gold mutual funds.

An investor should always consider the following factors when choosing on any mutual fund:
(1). Style of investment: Depending on their sizes or type, they should be able to allow option writing, hedging and shorting. Should also have the capability of holding bullion.
(2). Charges on the sales: Some mutual funds are usually set aside for new investors. Charges can be a front end, back end or even no charge.
(3). Ratio of expense: Find out if there is the inclusion of leverage expense.
(4). Past performance records: try to track and find out detailed information on the past performance of the mutual fund in the market.
(5). Manager experience: the portfolio manager should have a wide and enough experience on the mutual fund one chooses.
(6). The turn over of portfolio: higher turnovers usually mean high distributions.