Gold has always held a strong place in Indian households, acting as a symbol of security and long-term wealth. And in 2025, gold has had an exceptional run with a YTD absolute return of 67.4% (as of December 3, 2025). Several global events have pushed this unprecedented rise of gold. Ongoing geopolitical conflicts including the Russia-Ukraine war, the weakening US dollar, and the trade tensions triggered by higher tariffs under Trump 2.0, have all supported gold prices in the last few years.
But owning physical gold comes with its own challenges. Because of this, many investors now prefer market-linked options. One of the most efficient of which today is gold mutual funds. These funds offer exposure to gold without the need to buy or store physical gold. This article explains the top five such funds in India.
What Are Gold Mutual Funds?
Gold mutual funds, also known as gold savings funds, invest in units of gold exchange-traded funds (ETFs). They track the price of the precious metal and allow simple buying and selling. The price of the fund depends on global gold prices. Gold mutual funds follow these changes closely, with professional management.
Gold mutual funds differ from gold ETFs. You can buy a gold mutual fund directly through a regular mutual fund platform, but ETFs require a trading account. Unlike ETFs, gold mutual funds also allow SIP investments, supporting disciplined investing. This makes them easy and flexible for new investors and more accessible for retail participants.
Gold acts as a hedge against market volatility, as gold prices often rise when there is instability in global economies and markets. This gives equity portfolios a layer of protection. Hence, many investors use gold funds as part of their long-term wealth plan. A mutual fund consultant can help you understand how gold fits into your plan. The right approach can support your long-term stability, giving market-linked gains from gold without the associated operational challenges.
Why Prefer Gold Funds Over Physical Gold
Physical gold remains popular in India, but it comes with hidden costs and risks. Gold funds solve many of these problems. Some major benefits of gold mutual funds include:
- No risk of theft
- No locker or storage cost
- No worries about purity
- Better liquidity (easier buying and selling)
- Transparency in prices
- Low minimum investment options
- Can be part of a SIP plan
These advantages explain why many investors now prefer financial gold. They want convenience and reliability. So gold mutual funds become an obvious choice.
Top 5 Gold Mutual Funds in India
This list highlights the top-performing gold mutual funds. Each fund analysis covers returns, holdings, and key features.
1. ICICI Prudential Regular Gold Savings Fund (FOF)
This fund invests mainly in ICICI Prudential Gold ETF.
Returns:
- 1 year: 66.2%
- 3 year: 32.4%
- 5 year: 19.8%
Exit load of 1% if redeemed within 15 days.
2. SBI Gold Fund
SBI Gold Fund provides gold exposure by investing in SBI Gold ETF.
Returns:
- 1 year: 66.0%
- 3 year: 32.2%
- 5 year: 19.9%
Exit load of 1% if redeemed within 15 days.
3. Mirae Asset Gold ETF Fund of Fund
This fund invests in Mirae Asset Gold ETF.
Returns:
- 1 year: 65.62%
- 3 year: NA
- 5 year: NA
Exit load of 0.05%, if redeemed within 15 days.
4. Quantum Gold Savings Fund
Quantum Gold Savings Fund invests primarily in Quantum Gold ETF.
Returns:
- 1 year: 66.52%
- 3 year: 32.36%
- 5 year: 19.84%
Exit load is nil.
5. UTI Gold ETF FoF
UTI Gold ETF FoF provides gold exposure through UTI Gold ETF.
Returns:
- 1 year: 66.23%
- 3 year: 32.76%
- 5 year: NA
Exit load of 1%, if redeemed within 15 days.
Risks To Consider Before Investing
Gold funds offer stability. But they also carry risks. Investors must understand these risks before making decisions. A clear view helps you avoid surprises.
Key Risks:
- Price Volatility: Gold prices fluctuate due to global events. These movements impact your returns.
- Currency Risk: The USD/INR rate influences domestic gold prices. So currency swings affect fund performance.
- Tracking Error: Gold Mutual Funds may not perfectly match gold’s actual price. This gap can impact returns.
- Global Uncertainty: International trends can cause short-term instability in your fund. Investors must stay calm during such phases.
- No Income Generation: Gold does not pay interest or dividends. Your gains depend only on price changes.
- Short-Term Fluctuations: Gold may not suit short-term goals. You must have a medium or long term view.
A mutual fund advisor can help you understand these risks. Proper guidance ensures alignment with your financial plan and investing with awareness helps protect your portfolio in times of uncertainty.
How to Choose the Right Gold Fund for Your Goals
Choosing the right fund depends on your financial needs. Gold works best when used for wealth protection.
Key Steps to Choose the Right Fund
- Look at long-term track records, avoid choosing based only on recent returns.
- Compare expense ratios.
- Check how closely the fund tracks gold prices.
- Understand what role gold plays in your portfolio.
Your choice should support your goals and risk profile. A mutual fund consultant can help you assess these factors. Many investors use gold as a protective layer in their portfolio. This approach works well if you choose the right fund.
Role of Gold Mutual Funds in a Portfolio
Gold mutual funds can play different roles depending on your financial goals and risk appetite. The key is to use them with intention. Some ways to position gold in your asset allocation are:
1. As a Hedge
- Gold acts as a stabilizer when equity markets turn volatile.
- It moves differently from equities, which makes it a natural hedge.
- Useful during slowdowns, credit stress, or geopolitical events.
- Helps reduce sharp drawdowns in aggressive portfolios.
2. Long-Term Wealth Protection
- Gold protects purchasing power over the long term.
- It tends to retain real value even when inflation rises.
- Helps preserve wealth.
- Useful when interest rates are falling.
3. Tactical Allocation (Short-Term Opportunities)
- Gold prices react to currency movements, global inflation, and central bank decisions.
- If you follow macro trends, you can tactically adjust gold exposure. For examples:
- When the USD weakens
- When central banks hike gold purchases
- When real interest rates fall
Suitable Allocation Range
While every investor is different, most financial planners recommend:
- 5% to 15% allocation for average investors
- Up to 20% for conservative or risk-aware investors
- Lower allocation for aggressive purely growth-oriented portfolios
A mutual fund advisor can help you find the right mix based on risk and goals.
How Gold Complements Other Assets
Gold is not meant to replace equity, debt, or real estate. Its real benefit comes from how differently it behaves compared to these assets. This difference helps improve your portfolio’s stability and return consistency.
Equity Gold
- Equity markets do well when economic growth is strong, but they fall sharply during slowdowns or uncertainty.
- Gold behaves differently. Gold often moves up or stays stable when markets fall. During crises, investors shift to safe assets like gold.
- This creates a negative or low correlation between gold and equities, especially during stress.
Gold and Debt
- Debt investments depend on interest rates and inflation. Gold is driven by broader macro factors, so their movements are not tightly linked.
- When interest rates fall, gold often strengthens because lower real yields make gold more attractive.
- When rates rise and debt returns weaken, gold may still hold value.
- High inflation hurts debt returns, but gold tends to protect purchasing power.
- So, when debt struggles due to rising yields or inflation, gold can cushion the impact.
Gold and Real Estate
- Both gold and real estate offer inflation protection, but they respond to different factors.
- Real estate depends on:
- Local demand
- Interest rates
- Regulation
- Liquidity cycles
- Gold depends on:
- Global interest rates
- Currency movements
- Geopolitical events
- Central bank buying
- Since the drivers differ, their price movements are not strongly correlated.
- Gold offers liquidity and flexibility that real estate lacks. It is easy to buy and sell, carries low transaction costs, and acts as a global store of value.
Why Gold Matters in 2026: Market Outlook and Key Trends
The global environment heading into 2026 continues to support gold demand. Multiple macro forces are shaping the movement of precious metals, and understanding them would help investors make more informed allocation decisions.
1. Geopolitical Stress Is Not Easing Anytime Soon
- Geopolitical conflicts, shifting trade alliances, and policy uncertainty have made gold a safe-haven asset.
- Key stress points influencing gold:
- Russia-Ukraine tensions
- Trade friction under Trump 2.0
- Persistent Middle-East volatility
- China-Taiwan risk premium
- These events push investors toward defensive assets like gold.
2. Global Central Bank Buying Continues
- Central banks across Asia and the Middle East are actively increasing their gold reserves.
- Reasons include:
- Diversification away from the US dollar
- Rising geopolitical risks
- Long-term currency stability planning
- This steady demand provides structural support to gold prices.
3. Falling Global Interest Rates
- With the US Federal Reserve reducing rates by 50 basis points in 2025, real yields have softened.
- Lower real interest rates typically increase gold demand.
- Because gold offers no coupon, lower yields on bonds make gold relatively more attractive.
4. Weakness in the US Dollar
- A softening dollar boosts gold prices because gold is priced in USD globally.
- A weak USD environment usually happens when:
- Growth slows
- Inflation pressures rise
- Rate cuts begin
- Fiscal deficits widen
- All these trends remain visible in the 2025-2026 outlook.
5. Rising Use of Gold ETFs Globally
- Institutional investors worldwide are increasing allocation to gold ETFs. This indirectly supports the performance of Indian Gold Mutual Funds as well.
6. Structural Case for Long-Term Allocation
- Gold’s three core strengths remain intact:
- Inflation hedge
- Crisis protection
- Diversifier
- Given India’s increasing household wealth, financialization of savings, and higher gold awareness, the demand through gold mutual funds is expected to rise steadily.
