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Most mutual fund rating services define gold mutual funds as those having a objective relating to gold set out in the offering prospectus. Typically included are mutual funds that pursue capital appreciation by investing primarily in equity securities of companies engaged in the mining, distribution, or processing of gold and other precious metals. Mutual funds labeled as "gold mutual funds" are viewed as "specialty funds" because of their portfolio's focus on gold mining stocks, though some do own small amounts of gold bullion. Know that, though gold is a tangible asset, You will not take possession of it when you purchase shares in a gold fund. Instead, the mutual fund will hold the gold for all the fund's investors. Recognize that gold offers high liquidity. This means you can easily convert gold to currency. Most gold mutual fund portfolios concentrate on gold mining stocks, but some have significant exposure to silver, platinum, and base metal mining stocks as well. Precious metals companies are typically based in North America, Australia, or South Africa. Some mutual funds, included in Morningstar's group of gold mutual funds, pursue gold investing by having at least 65% of its total assets in (i) securities of companies primarily involved, directly or indirectly, in the business of mining, processing, fabricating, distributing or otherwise dealing in gold, silver, platinum or other natural resources ("Natural Resources Companies") and (ii) gold, silver and platinum bullion Remember that highly aggressive mutual funds take on more risks than their conservative counterparts. However, aggressive funds may offer more chances for significant financial rewards. Some gold mutual funds may invest in domestic or foreign companies that have small, medium or large capitalizations and concentrate their investments by investing at least 25% of its total assets in Natural Resources Companies. Gold mutual funds often concentrate investments in smaller companies and foreign securities, with mining and exploration risks of precious metals. So, gold mutual funds are riskier and more speculative than general, diversified funds. How to Choose a Gold Mutual Fund? When selecting any mutual fund, an investor might wish to consider some or all of the following. Other factors might affect to what extent the mutual fund selection is consistent with the financial objectives of the investor. 1. Investment style - Large or small capitalization stocks? Foreign or domestic? Do they allow hedging, shorting and option writing? Can they hold bullion? 2. Sales charge - None? Front-end, Back-end. 12b-1 Plan? Note that some gold mutual funds are closed to new investors. 3. Expense ratio - This reduces the mutual fund's overall return. Is leverage expense included? 4. Portfolio turnover - Look in the financial highlights table. Higher turnover can mean more taxable distributions (not a factor for an IRA investor). 5. Track record of past performance - This is not a guarantee of future performance. 6. Experience of the portfolio manager - 1 year managing the mutual fund or 5 years or more?
Recognize the significant differences in available gold funds. Review them according to investment style, strategies and objectives. Also, pay close attention to fund loads, expense ratios, sizes, turnovers and net asset values.