Diwali, Gold & Mutual Funds: A Different Way to Think About Gold This Festive Season

Gold and Diwali have always been together.

For generations, buying gold around Dhanteras and Diwali has been linked to celebration, prosperity and new beginnings.

But tradition has stayed, but the ways of getting exposure to gold have changed.

Today you can buy more than jewelry, coins or bars. Investors can also get access to gold through market linked products such as Gold ETFs and gold focused mutual fund structures.

So this Diwali, instead of beginning with:

“Is it time to buy gold?

Maybe there are a few more questions to ask.

First: Why am I buying gold?

This is obvious, but the answer matters.

Are you buying gold for a Diwali tradition?

Are you buying jewelry that you will wear?

Or, are you just looking at gold as an investment?

These are very different reasons, and they do not necessarily call for the same solution.

If you want exposure to an investment without actually physically owning it, it might be worth knowing what financial routes are open to you.

Gold without the locker?

Gold ETFs are set up to give investors exposure to gold without having to physically hold the metal. The underlying asset is gold and the value of ETF generally moves along with gold prices subject to scheme expenses and tracking differences. Gold ETFs are traded on stock exchanges and the units of gold ETFs are held in demat form.

That can eliminate some of the practical issues associated with physical gold—such as storage and purity. AMFI points out that Gold ETFs have convenience, less theft and purity concerns, and liquidity as features.

But there is another way as well.

What about a Gold Fund of Fund?

A Fund of Funds or FoF is a mutual fund that invests in the units of other funds or ETFs. Thus a Gold FoF can give exposure by investing in Gold ETFs without the investor having to directly buy the ETF.

This distinction is important.

Gold ETF: You buy units of gold ETF that are traded on the stock exchange and will generally need a demat account.

Gold FoF: Here you invest through a mutual fund scheme that invests in units of Gold ETFs as per its mandate.

Because a FoF adds another layer to the structure, investors should also be conscious of the expenses involved. AMFI states that expenses can be charged at the underlying-scheme level as well as at the FoF level, subject to regulatory limits.

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But gold is gold. Isn't it automatically “safe”?

Not quite.

Gold may behave differently from equities and other asset classes, which is one reason investors consider it for diversification. But that doesn't mean its price only moves upwards.

Gold prices can be influenced by inflation, interest rates, currency movements, geopolitical developments and broader demand and supply conditions. SEBI also assigns risk values to gold and gold-related instruments based on their historical annualised volatility for mutual-fund Risk-o-meter calculations.

So even during Diwali, the more useful question may not be:

“Is gold a good investment?”

It may be:

“What role would gold play in my portfolio?”

Before adding gold, look at what you already own

Festivals can create a natural trigger to invest.

But your portfolio doesn't reset because it's Diwali.

Before adding a Gold ETF or Gold FoF, you could ask:

Do I already have exposure to gold?

How much of my portfolio would gold represent after this investment?

Am I adding it for diversification—or simply because gold is in the conversation right now?

Does this fit my investment horizon?

Do I understand the risks, costs and tax implications of the route I'm considering?

The last question is particularly important because tax treatment can depend on the investment structure, acquisition date, holding period and applicable tax rules. Investors should check the latest rules or consult a tax professional rather than assuming physical gold, Gold ETFs and Gold FoFs are treated identically.

This Diwali, don't just follow the tradition. Question the investment.

There is nothing wrong with buying gold because it is meaningful to you.

And there is nothing wrong with considering gold as part of an investment portfolio.

But those are two different decisions.

If it's jewellery, perhaps the purpose is celebration.

If it's an investment, perhaps the conversation should go a little further.

Why gold?

Why now?

Which route?

How much exposure do I already have?

And where does it fit in the rest of my portfolio?

Because sometimes the better investment conversation doesn't start with:

“What should I buy this Diwali?”

It starts with:

“What should I ask before I buy?”

Ask QONFIDO.

Kyuki, Ask Karoge Tabhi Toh Badhoge.

Mutual fund investments are subject to market risks; please read all scheme-related documents carefully. Past performance is not a guarantee of future returns.

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