Gold ETFs Draw Investor Interest Ahead Of Dhanteras: Icra Analytics

Gold exchange traded funds (ETFs), which has witnessed over seven-fold surge in assets under management (AUM) in the last five years from Rs 5613.22 crore in September 2019 to Rs 39,823.50 crore in September 2024, seem to be the flavour of the season ahead of the Dhanteras, Icra Analytics stated.

Icra Analytics added that inflows into Gold ETFs have surged by nearly 88 per cent since the beginning of this calendar year at Rs 1232.99 crore in September 2024, up from Rs 657.46 crore in January.

Gold ETFs have been increasingly gaining popularity among investors due to liquidity, transparency and global price alignment, said Icra Analytics. The growing interest is evident with inflows into the fund surging by a whopping 2695 per cent from Rs 44.11 crore in September 2019 to Rs 1232.99 crore in September 2024.

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. Also, there are concerns of purity and theft while investing in physical gold, which is not the case with Gold ETFs.

“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.

There are as many as 17 Gold ETF schemes in the market and the average one-year returns was in the range of 29.12 per cent while three year and five year returns were 16.93 per cent and 13.59 per cent respectively. LIC MF Gold ETF gave the maximum returns on a one year, three year and 5-year basis at 29.97 per cent, 17.47 per cent and 13.87 per cent respectively. This is marginally lower in contrast to an average return of 30.13 per cent, 18.03 per cent and 14.88 per cent over a one year, three year and five year period on physical gold.

India is estimated to be the second-largest gold consumer in the world after China. There were expectations of high gold demand during the festive season following the government's import duty cut in July 2024. However, there are worries that high gold prices may dent investor sentiment as the same may tighten the spending power of many buyers. 

Moreover, buying physical gold comes with its fair share of risk including storage, theft and impurities thereby impacting the returns. Gold ETFs are comparatively safer as they are governed by tight regulations and are traded on exchanges on a real-time basis.

“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,” Kumar added.