Several investors who have put their faith in gold funds are
now a disappointed lot as it has been a long time since there has been much to
show on the returns front for these funds. This highlights the nature of the
fund and it also shows that investors need to have a certain mindset in place
as they evaluate these kinds of options. This is significant from the point of
view of making the right decision and hence here are a few things that need to
be highlighted as the investors ponder the options in front of them.
Long cycle
Unlike equity or debt oriented funds when it comes to
commodity linked funds the investors should be ready for a longer cycle. There
could be times of quick rallies and corrections in equity markets but often the
trend can be boring when it comes to commodities like gold. There is usually a
long period of time for which a bull rally would continue and then the
situation could reverse as quickly and then the pain could also continue for
quite some time. The cycles on the downside could be as long and this could be
several years and hence the investor would have to be ready for this kind of
position. Often investors get edgy when nothing seems to happen for quite some
period of time but patience is something that would be a very valuable tool for
these investments
Continuous investments
The challenge before the investor in such a situation is to
ensure that there are continuous investments that are taking place during the
downturn. This provides a very good opportunity for the investor to ensure that
they are able to accumulate the units of the fund when the prices are low. This
also has an added danger for the investor because they could here too invest
for some period of time and then lose patience saying that nothing seems to be
changing and give up investing. However this would actually represent a lost
chance in terms of getting a good price for the unit as they would be available
quite cheap when the value is low. An extended time period when this happens
should be used effectively and for the long term investor this could be a good
opportunity to ensure that they have adequate exposure in the area.
Goal in mind
It is essential that
the investor should have a goal in mind when they are making an investment in
such commodity funds like gold funds. If this is not there and there is just a
vague notion of making some gains then it would be very difficult to ride out
the tough times that they would end up facing. However if there is a clear goal
that is present which is also long term in nature and this is clearly
articulated then there would not be a problem as it could be clearly possible
for the investor to demarcate the amounts for a specific purpose and that they
are being accumulated for this specific reason.
Overall
the overall
understanding for the investor should be that they have to think with a clear
mind and not get too worried about what is happening right now. The manner in
which returns are made in this area is that there could be long time periods
when nothing happens and then there would be a sudden jump in the value which
would mean a sharp appreciation. This is the reason why the investor needs to
remain invested and keeping putting in money when the going is not good so that
they are able to reap the true benefits when things actually start improving.
All this should however match with their needs and requirements.
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