How to Select the Gold Fund That's Right for You: A Guide for Investors

When inflation rises, many investors turn their attention to gold, a trusted asset for a long time. There are various ways to invest in gold, from buying physical gold bars to investing through Gold Funds, which has become very popular because of its convenience, safety, and professional management. However, before choosing to invest, interested parties must clearly understand what Gold Funds are, what types are available, and how they differ.

Key Factors to Consider Before Investing

Choosing a Gold Fund is not as simple as buying gold bars, as many variables affect returns. Most funds in Thailand have similar policies—focusing on investing in gold—but the operational details can differ significantly.

Issue 1: Currency Risk Hedging

Gold in the global market is traded in US dollars. When converted to Thai baht, the fund’s value is affected by the volatility of the dollar-baht exchange rate. This is a crucial factor that many often overlook.

In case the baht depreciates, the value of gold when converted to baht increases, potentially leading to higher-than-expected returns. In case the baht appreciates, returns may decrease even if global gold prices remain unchanged.

To manage this risk, funds typically have two types:

• Unhedged (ไม่มีการป้องกัน): Accepts exchange rate risk. Suitable for those willing to take high risk, as they may benefit from favorable exchange movements.
• Hedged (มีการป้องกัน): Uses forward contracts to lock in the exchange rate. The hedging program usually covers no less than 90% of the asset value. Suitable for those seeking more stable returns.

Issue 2: Dividend Policy

Some funds periodically distribute profits to unit holders, which can reduce the total long-term returns. However, investors receive cash periodically, which can be beneficial if additional income is desired from the investment.

Some funds do not pay dividends, potentially offering better long-term returns as profits are reinvested.

Issue 3: Stock Market of Trading

Funds traded in New York tend to have higher liquidity but have the downside of announcing prices about a day later due to time differences.

Funds traded in Singapore have slightly lower liquidity but announce prices faster.

However, historical data shows that both markets have similar performance outcomes.

Deep Dive into Gold Funds

Funds are mechanisms managed by securities companies (asset management companies) that pool money from many investors to invest according to a set policy. In the case of Gold Funds, the pooled money is invested in gold assets, whether directly in physical gold or through ETFs like SPDR Gold Trust.

Most Gold Funds are passive funds, aiming to closely track the global gold price. They are managed based on reference standards, primarily using SPDR Gold Trust, which is the largest gold ETF.

Details of Leading Gold Funds to Consider

From Siam Commercial Bank

SCBGOLD invests in units of SPDR Gold Trust traded on the Singapore Exchange, without currency risk hedging. Suitable for risk-tolerant investors seeking maximum returns.

SCBGOLDH has the same investment policy as SCBGOLD but hedges currency risk by at least 90% of the asset value. Suitable for those seeking stability.

From TMB Bank

TMBGOLD invests in units of SPDR Gold Trust traded on the New York Stock Exchange, with no currency hedging, offering broader return potential.

TMBGOLDS invests similarly but trades on the Singapore Exchange and hedges currency risk at the fund’s discretion.

From Kasikornbank

K-GOLD-A(A) invests in units of SPDR Gold Trust with currency risk hedging of at least 90%. No dividends are paid, suitable for long-term wealth accumulation.

K-GOLD-A(D) is similar but pays dividends up to 4 times per year, with the dividend amount not exceeding 100% of accumulated profits.

( From Thanachart Eastspring

TGoldBullion-H invests directly in foreign physical gold with purity of at least 99.5%. Uses futures contracts to hedge currency risk of at least 90%.

TGoldBullion-UH also invests directly in physical gold but without currency risk hedging, leading to value fluctuations aligned with exchange rate movements.

Investing in Gold via Funds vs. Gold Futures Contracts

Investing through Gold Funds offers many advantages: investors do not need to store physical gold, handle storage costs, or invest abroad themselves. Simply open an account with a securities company, and professionals manage the funds according to the policy.

However, there are limitations: investors can only buy or sell once per day at the NAV price at the end of the day. Management fees vary by fund.

For long-term investors or those without time to monitor prices, gold funds are a suitable choice. They provide easy access to gold assets without needing to understand all complexities.

In contrast, Gold CFDs )CFD### are tools for short-term traders seeking high liquidity, real-time prices, and multiple trades per day. CFDs offer opportunities for high profits but come with higher risks.

Summary

Gold Funds are a safe and convenient option for investing in gold. For regular investors wanting to preserve asset value, gold funds are comprehensive, but it’s essential to understand differences among funds, especially regarding currency risk hedging and dividend policies.

For traders, CFDs might be a better alternative if aiming to profit from short-term volatility. Nonetheless, thorough research and careful risk management are essential for all investment methods.