Gold FoF inflows face curbs: What should investors do now?

Gold fund-of-funds (FoFs) have recently faced restrictions on fresh investments from certain mutual fund houses. This development has left investors questioning their options for continuing to invest in gold. FoFs are mutual funds that invest in Gold ETFs, allowing investors to gain exposure to gold prices without handling physical gold.

They function by purchasing units of a Gold ETF, whose value moves in line with gold prices. Investing in a Gold FoF offers simplicity and convenience, as investors can buy and redeem units like any other mutual fund scheme.

Several fund houses have temporarily halted fresh investments in Gold FoFs due to concerns over rising gold imports and strong inflows into gold investment products. While the specific reasons have not been disclosed, industry experts speculate that the move may be aimed at curbing demand for imported gold if inflows remain high.

For investors seeking alternatives, Gold ETFs present an option for maintaining exposure to gold prices. Unlike FoFs, ETFs can be bought and redeemed through a demat and trading account, providing greater flexibility. However, ETFs typically require a demat account, which may deter some investors. Also, unlike FoFs, ETFs do not offer the convenience of a SIP (Systematic Investment Plan).

Some brokers offer SIP facilities for buying ETFs and stocks, but these platforms are considered less user-friendly compared to mutual funds. Additionally, not all ETFs trade at a discount to their NAV, leading to potential liquidity issues for investors.