The quantum of net flows into Gold Exchange Traded Funds (ETFs) has seen a significant upswing, with investments soaring from ₹175 crore in September to ₹841 crore in October, according to the Association of Mutual Funds in India (AMFI). This data, revealed just a day before the auspicious occasion of Dhanteras, underscores a renewed interest among investors in Gold ETFs.
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Notably, the ETF category experienced its highest net inflow in the last 16 months, reaching ₹1,028.06 crore in August, but observed a decline in September.
Understanding Gold ETFs
Gold ETFs function as electronic representations of physical gold, securely stored in demat accounts. These ETFs are listed on stock exchanges and provide real-time price updates, making them a convenient choice for investors. Unlike SIP-based investments, Gold ETFs offer flexibility for experienced investors to analyse the market and invest based on their understanding, while SIP investments are more user-friendly for beginners.
Gold ETFs typically invest 90% to 100% in 995 pure gold, allocating the remainder to debt. One of their key advantages is liquidity, as they lack exit loads. This means investors can buy or sell units at any time during market hours, providing ease and convenience for investors.
Rising inflows and returns
The increase in investments in Gold ETFs can be explained by several factors that have influenced investor behaviour. These include ongoing tensions in global politics, concerns about the US Federal Reserve raising interest rates, inflation rates being higher than anticipated, and a slower rate of economic growth.
In times of economic uncertainty, investors traditionally flock to gold, viewing it as a reliable store of value.
According to Melvyn Santarita, an analyst at Morningstar Investment Adviser India, these factors have made gold more attractive to investors as a safe investment option and a way to protect their wealth against the erosion of purchasing power caused by inflation. Additionally, the recent drop in the price of gold from its previous record highs has made it more affordable and enticing for investors to buy, as they see it as a good opportunity to enter the market.
Gold has recently shone brightly as the best-performing asset class this year. However, it has witnessed some fluctuations, too. According to a Motilal Oswal note, the fluctuating nature of the global economy has significantly affected the gold market this year. Globally, gold prices soared to an all-time high of $2,070 at the start of the year, only to retreat to lows around $1,800, before rebounding to $2,000.
Several Gold ETFs have shown decent returns over the last year. Take a look:
| ETF Name | 1-Year Returns | 5-Year Returns | 10-Year Returns |
|---|---|---|---|
| Nippon India Gold ETF | 16% | - | - |
| LIC MF Gold ETF | 21.00% | 13.19% | 6.93% |
| Aditya Birla Sun Life Gold ETF | 19.74% | 12.97% | 6.15% |
| SBI Gold ETF | 20.20% | 13.00% | 6.66% |
| Axis Gold ETF | 20.17% | 13.08% | 6.42% |
| HDFC Gold ETF | 19.77% | 12.75% | 6.64% |
| ICICI Prudential Gold ETF | 19.80% | 12.80% | 6.5% |
| Invesco India Gold ETF | 20.39% | 13.12% | 6.72% |
| Kotak Gold ETF | 19.76% | 12.91% | 6.60% |
| Nippon India ETF Gold BeES | 19.51% | 12.71% | 6.58% |
| UTI Gold ETF | 20.63% | 12.74% | 6.62% |
(Source: AMFI)
Investment considerations
With these developments, investors are faced with an important decision regarding whether to continue investing in Gold ETFs. Experts believe that Gold ETFs offer distinct advantages over physical gold, including liquidity, ease of trading, minimal storage concerns, and reduced taxes. They provide real-time pricing on stock exchanges and cater to both experienced investors who want to analyse the market and beginners who prefer systematic investment planning (SIP).
However, just like stock market investments, caution is advised when investing in Gold ETFs. Rash buying and selling could lead to heavy losses, impacting the investment portfolio. It is advisable to use Gold ETFs in India as safe assets and a hedge against investment risks, rather than as daily profit-trading tools, as suggested by Bankbazaar.
(Edited by : Amrita)
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