Definition of Gold Investment Funds
Gold investment funds are financial instruments that allow for indirect investment in the gold market. These funds pool together both small and large investments to allocate resources into gold and related assets.
How to Invest in the Fund
In these funds, instead of purchasing physical gold, investors buy "investment units." Each unit represents a portion of the fund’s total assets. The price of these units fluctuates based on the value of gold and other assets in the fund’s portfolio.
Professional Management
The funds are managed by a team of gold market specialists. These professionals continuously analyze the market, make investment decisions, and manage risks to maximize potential returns for investors.
Advantages Over Physical Gold
These funds eliminate the issues of storage, theft risk, and the high capital needed to buy physical gold. Instead, they allow participation in gold price fluctuations with smaller amounts and through the stock exchange.
Tradability on the Stock Exchange
Units of these funds are tradable during official stock market hours. Investors can enter or exit the fund at any time, without going through the complex processes of buying or selling physical gold.
Relationship with Gold and Currency Prices
The value of fund units is directly linked to global gold prices and the exchange rate of foreign currencies in Iran’s open market. An increase in the price of gold or the U.S. dollar leads to a rise in the unit value, and vice versa.
Role in Diversification and Risk Hedging
Gold funds are important tools for diversifying an investment portfolio. In times of inflation or market instability, these funds can serve as a safe haven for preserving capital value.
Structure and Functioning of Gold Investment Funds
Gold investment funds follow a diversified and balanced structure in asset management. A major portion of the fund’s portfolio is allocated to gold deposit certificates, which are physically backed.
Another portion of the assets is invested in gold related derivatives, enabling the fund to manage risk and take advantage of market opportunities. Additionally, a small percentage of the assets is held in cash to ensure the fund can respond to investors' buy and sell requests.
Capital Management Method
Capital in these funds is managed by a team of gold market specialists. This team uses expert analysis to evaluate global gold market trends and domestic economic conditions. Based on these analyses, they make investment decisions. The fund managers also apply risk hedging strategies to protect investors' capital against sharp market fluctuations.
The management team continuously monitors the fund’s performance and adjusts the asset mix as needed. They must also ensure the fund consistently complies with the regulations and legal frameworks governing the capital market.
Unit Pricing Process
The pricing of units in gold investment funds is based on the fund’s net asset value (NAV). This valuation is performed daily, considering the global gold price, exchange rates, and the value of the fund’s other assets.
In this process, the total value of the fund’s assets is first calculated. Then, management fees and other fund liabilities are deducted to determine the net asset value. Finally, this amount is divided by the total number of fund units to determine the price per unit.
Unit prices may fluctuate during trading hours, but these fluctuations are controlled within a defined range to prevent sharp price changes. Additionally, the fund’s market makers are responsible for maintaining market liquidity by buying and selling units and for preventing abnormal price volatility.
Differences Between Investing in a Gold Fund and Buying Physical Gold
Investing in a gold fund and purchasing physical gold have significant differences:
Storage and Security
In physical gold purchases, you are responsible for storing and protecting the gold. This requires a bank safety deposit box or a home safe, which involves additional costs. However, in a gold fund, there are no storage concerns, and your investment is managed electronically under the supervision of official regulatory bodies.
Flexibility in Transactions
A gold fund allows for fractional buying and selling. You can purchase or sell units in the amount you need. In contrast, physical gold usually must be traded as whole pieces, which offers less flexibility.
Transaction Costs
Transaction fees in a gold fund are significantly lower than those in physical gold transactions. When buying physical gold, you must also pay additional costs such as fabrication fees, taxes, and the seller's profit
Ease of Transaction
Gold fund transactions are conducted online and through the stock exchange platform. There is no need for in person visits or physical transportation of gold. This not only adds convenience but also provides greater security.
Minimum Required Capital
Purchasing physical gold requires a significant amount of capital, but gold funds can be bought with small scale investments.
Professional Management
In a gold fund, a team of specialists manages your capital and aims to achieve optimal returns using various tools. However, in physical gold purchases, investment management is solely your responsibility.
Liquidity
Selling physical gold may be difficult under certain market conditions. However, gold fund units can be liquidated easily and at any time.
Price Transparency
The price of gold fund units is displayed in real time on the trading platform, while pricing in the physical market may lack transparency.
Risk Hedging
Fund managers can hedge investment risks using various financial instruments, whereas such options are not available when purchasing physical gold.
These differences have made gold funds an attractive option for investors seeking an easier and less troublesome way to invest in the gold market.
Advantages of Investing in a Gold Fund
Advantages:
Investment Security
Gold investment funds operate under the direct supervision of the Securities and Exchange Organization. This supervision includes strict control over asset management, transaction transparency, and regular reporting.
Additionally, the fund's assets are held with reputable banks, ensuring their physical security. Moreover, the electronic systems used in transactions utilize the most advanced security protocols, minimizing the risk of fraud and scams.
High Liquidity
Investors can quickly convert their units into cash during market trading hours. Unlike physical gold, which may take days to sell, transactions in a gold fund are executed in a fraction of a second.
It is also possible to sell a portion of the investment without the need to liquidate the entire holding. The presence of a market maker in these funds further ensures that there is always a buyer for your units.
Professional Management
Gold funds are managed by a team of financial experts and market analysts. These individuals continuously analyze global gold markets, exchange rates, and economic conditions to adopt the best investment strategies.
They also utilize advanced financial instruments for risk hedging and return optimization. This professional management allows even inexperienced individuals to benefit from investing in the gold market.
Low Transaction Costs
Transactions in gold funds are carried out with very low fees. Unlike buying and selling physical gold, which involves many additional costs such as making charges, taxes, and commissions, only a small transaction fee is paid in a gold fund.
Furthermore, hidden costs such as storage, insurance, and transportation, which are associated with physical gold, are eliminated in gold funds. These low costs increase the net profit of the investment and offer greater economic efficiency for the investor.
Risks and Limitations of Gold Funds:
Price Fluctuation Limits:
Gold funds are subject to specific limitations on price fluctuations. The daily fluctuation range for these funds is usually set between 5% and +5%. This limitation prevents investors from reacting quickly during highly volatile market days. When global gold prices experience significant changes, this restriction can be a major obstacle for traders. Additionally, during market crises, this limitation can result in losses for investors.
Market Risks:
Gold funds face multiple risks. Fluctuations in global gold prices, changes in exchange rates, and global political and economic developments all affect the performance of these funds. Changes in central bank monetary policies, geopolitical tensions, and economic crises can lead to sharp fluctuations in gold prices. Moreover, liquidity risk can become problematic at times.
Guide to Investing in a Gold Fund
Conditions and Requirements
To invest in gold funds, individuals must have a stock exchange trading code. Possessing a Sejam code and completing identity verification in the relevant systems is also essential. Investors must have a bank account linked to the trading platform. The minimum capital required to enter these funds is relatively low, making this market accessible to most individuals.
Steps for Purchasing Units
Investors can purchase gold fund units through brokerage firms or trading applications. First, the intended amount must be deposited into the trading account. Then, by selecting the desired fund symbol and specifying the number of units, a purchase order is placed. After the transaction is executed, the purchased units will be visible in the investor's portfolio.
Trading Hours
Gold fund transactions are conducted on business days of the week from 8:30 AM to 3:30 PM. The market pre opening period is from 8:30 to 9:00 AM, and official trading begins at 9:00 AM. No trading occurs on official public holidays. During trading hours, investors can place their buy and sell orders. It is also possible to view buy and sell queues and trading prices during this time.
Factors Affecting the Return of Gold Funds
Fluctuations in Global Gold Prices
The global price of gold is one of the most important factors influencing the return of gold funds. Changes in the global price of this precious metal are affected by international political tensions, the level of industrial and jewelry demand, as well as the policies of major central banks in buying and selling gold reserves. Additionally, the amount of gold extraction and supply from major mines around the world also has a direct impact on the price of this precious metal.
Exchange Rate Changes
Fluctuations in exchange rates are considered the second key factor in the return of gold funds. Central bank currency policies, the status of international sanctions, the country's export and import volumes, and the domestic inflation rate all affect the exchange rate. Since gold pricing in the domestic market is based on the dollar rate, changes in exchange rates directly impact the return of gold funds.
Fund Management Performance
The quality of fund management plays a significant role in its return. Successful managers can enhance fund performance by adopting proper buy and sell strategies, timely decision making in volatile market conditions, and effective liquidity management. The ability to forecast price trends and accurately analyze market conditions are essential skills for gold fund managers.
Macroeconomic Conditions
The overall state of the country’s economy has a considerable impact on the return of gold funds. Bank interest rates, economic growth, inflation rate, and the government’s monetary and fiscal policies can all influence the flow of investments into gold funds. In times of inflation and economic uncertainty, the tendency to invest in gold usually increases.
Technical Market Factors
Technical market factors such as trading volume, liquidity of fund units, and fluctuation limits affect the daily returns of funds. Investor trading behavior and the level of interest in fund units also play a significant role in pricing and fund returns.
Operating Costs
Various costs such as transaction fees, fund management expenses, gold storage and warehousing fees, and related taxes directly impact the net return of the fund. Efficient management of these costs can help increase fund profitability.
Market Sentiment Factors
Market sentiment and investor expectations play an important role in fluctuations in the price of fund units. Public inflation expectations, market news and rumors, investor risk appetite, and overall trust in investment funds all influence investor decisions and consequently affect fund returns.
Regulations and Laws
Changes in stock exchange regulations, gold trading rules, and supervisory requirements can affect the performance of gold funds. Legal restrictions on investment and changes in tax laws can also impact fund investment strategies and thus its returns.
Important Points for Investors
Minimum Required Capital:
To start investing in gold funds, a large capital is not necessary. Usually, you can begin your investment with a minimum of 500,000 Tomans. Interestingly, you can gradually add smaller amounts to your capital on a monthly basis. This method is especially suitable for individuals with a fixed monthly income. With this strategy, over time you can build a significant portfolio.
How to Choose the Right Fund:
When selecting a gold fund, you should pay attention to several key factors:
- Liquidity:Check the daily trading volume of the fund. A fund with higher trading volume has better liquidity.
- Performance History:Compare the fund’s returns over different periods (3 months, 6 months, and annually).
- Management Team:Review the background and expertise of the fund managers. More experienced managers generally perform better.
- Management Fees:Compare the fees and management costs of the funds. Lower costs mean higher profits for you.
- Transparency of Information:Choose funds that provide accurate and up to date information about their performance and asset composition.
Timing of Investment
- Trading Hours:The best time to trade is during the mid market hours (between 12:30 PM and 2:00 PM), as volatility is usually lower during these hours.
- Days of the Week:Generally, midweek days (Tuesday and Wednesday) are better for trading because the emotional volatility of Saturday and Sunday is less on these days.
- Economic Calendar:Pay attention to major economic events that affect gold prices. Avoid trading on days when important economic data is announced.
- Dollar Cost Averaging Strategy:Instead of investing a lump sum, you can divide your capital into several parts and invest over different time periods to reduce the risk of price fluctuations.
- Investment Horizon:For investing in gold funds, consider a minimum investment horizon of 6 months. This period helps reduce the impact of short term market fluctuations.
- Market Conditions:When gold prices are in a steep downward trend, you can take advantage of the opportunity to buy cheaper. Also, avoid impulsive buying during sharp upward trends.
