Gold ETFs (Exchange-Traded Funds) are catching investors’ attention with their decent returns. Over the past year, Gold ETFs have delivered an average return of 29%, according to ICRA Analytics report.
The three-year and five-year average returns stand at 16.93% and 13.59%, respectively. LIC MF Gold ETF leads with returns of 29.97% (1-year), 17.47% (3-year), and 13.87% (5-year).
These high returns are driven by a rising interest in safe-haven assets, as geopolitical tensions and inflation concerns push investors towards gold.
Surge in Gold ETF inflows
Gold ETFs in India have seen a massive surge in inflows this year.
As of September 2024, inflows have jumped by 88% to ₹1,233 crore, up from ₹657 crore in January.
Over the past five years, AUM in Gold ETFs has grown more than seven-fold, from ₹5,613 crore in September 2019 to ₹39,824 crore, as per ICRA Analytics report.
Globally, the trend is similar.
Globally, gold ETF inflows have extended their streak to five consecutive months, with net global assets reaching $271 billion by September 2024, as per World Gold Council (WGC) report.
This growth is driven by several factors.
Gold ETFs offer liquidity, transparency, and easy access to the gold market without the risks associated with storing physical gold.
Ashwini Kumar, Senior Vice President at ICRA Analytics, highlighted that investors are favoring Gold ETFs for their “cost-effectiveness and ease of trading,” especially during uncertain times.
Why Gold ETFs over physical gold?
Unlike physical gold, which requires secure storage and often involves concerns over purity and theft, Gold ETFs eliminate these risks. They are tightly regulated and traded in real-time on stock exchanges, making them a convenient option for investors seeking exposure to gold.
“The escalating geopolitical tensions have supported the ‘safe-haven’ appeal of gold, making Gold ETFs an attractive investment option compared to physical gold,” according to a report by ICRA Analytics.
Festive demand and outlook
India, the world’s second-largest consumer of gold, is gearing up for the festive season.
However, with gold prices remaining high, many buyers may opt for Gold ETFs over physical purchases.
For investors, Gold ETFs present a viable option in the current market environment.
Ashwini Kumar advises a “buy on dips” strategy, allowing investors to capitalise on temporary price corrections.
In times of market volatility and inflationary pressures, adding a modest allocation of gold to a portfolio can act as a hedge, balancing risk.