Gold investment in Diwali: Gold ETFs have proven to be a popular choice for investors worldwide looking to add exposure to the precious metal. In September 2024, gold exchange-traded funds (ETFs) received net inflows for the fifth consecutive month, a trend observed not only in India but globally. This spike in interest can be attributed to the recent US rate cut and increasing geopolitical tensions, prompting investors to seek shelter in safe-haven assets.
According to a report by the World Gold Council (WGC), the total assets under management (AUM) of gold ETFs grew by five percent to reach $271 billion worldwide. Additionally, collective holdings of gold ETFs increased by 18 tonnes to 3,200 tonnes by the end of September 2024.
In India, barring just two months (March 2023 and April 2024), the Indian gold ETFs registered net inflows over the last 20 months, as per the data published by the Association of Mutual Funds in India (AMFI). It exhibits an increased interest among Indian investors in gold ETFs. As of September 30, 2024, the Indian gold ETFs had an AUM of Rs 39,824 crore.
Gold ETF performance
In India, gold ETFs are mutual fund schemes managed passively that focus on investing in standard gold bullion with 99.5 percent purity. These funds closely follow the domestic gold price and currently, India has 17 gold ETFs available. The top three gold ETFs in terms of assets managed are Nippon India ETF Gold BeES, HDFC Gold ETF, and SBI Gold ETF.
Based on findings from ICRA Analytics, there is a growing trend in the popularity of Gold ETFs leading up to Dhanteras. Inflows into Gold ETFs have shown a significant increase of 88% since the beginning of the current year, amounting to Rs 1232.99 crore in September 2024, compared to Rs 657.46 crore in January.
According to ICRA Analytics, Gold ETFs are gaining popularity among investors due to their high liquidity, transparency, and correlation with global prices. The growing interest is evident as fund inflows skyrocketed by a remarkable 2695% from Rs 44.11 crore in September 2019 to Rs 1232.99 crore in September 2024.
The one-year average returns were approximately 29.12%, with 3-year and 5-year returns standing at 16.93% and 13.59% respectively. According to Icra’s analysis, LIC MF Gold ETF delivered the highest returns over 1-year, 3-year, and 5-year periods, at 29.97%, 17.47%, and 13.87% respectively. These figures slightly trailed behind the average returns of physical gold at 30.13%, 18.03%, and 14.88% over the same time frames.
“Gold ETFs have been increasingly gaining popularity among investors due to liquidity, transparency and global price alignment..With the escalating geopolitical tensions boosting the “safe-haven” appeal of the bullion, investors are preferring to park their funds in Gold ETFs as compared to investing in physical gold as there is no hassle of storing it,” the ICRA note stated.
Should you invest in Gold ETFs now?
“Investors favour investing in Gold ETFs due to liquidity, transparency, cost-effectiveness, and ease of trading compared to physical gold. The heightened activity in these funds is also driven by the prospects of an interest rate cut by the U.S. Federal Reserve in the coming months,” said Ashwini Kumar, Senior Vice President and Head Market Data, ICRA Analytics.
He further said: “Investors with a short to medium term investment horizon may consider investment through Gold ETFs. A buy on dips strategy in this case may help investors to capitalise on temporary correction in prices. Also, given the current market dynamics where equities are showing mixed trends, a modest allocation to gold may serve as a hedge against inflation and market volatility which may help balance risks in an optimum manner.”
Gold investment
India is projected to be the second-largest gold consumer globally, trailing only behind China. Anticipation was high for increased gold demand during the festive season following the government’s reduction of import duties in July 2024. However, concerns have been raised regarding the impact of elevated gold prices on investor sentiment, potentially restricting the purchasing power of many buyers. In addition, investing in physical gold carries inherent risks such as storage, theft, and impurities, which can adversely affect returns. On the other hand, Gold ETFs offer a safer alternative since they are subject to stringent regulations and are traded on exchanges in real time.
Disclaimer: Business Today provides market and mutual fund news for informational purposes only and should not be construed as investment advice. All mutual fund investments are subject to market risks. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.