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The sharp rise in gold prices has led to a spike in the assets under management (AUM) of gold exchange traded funds (ETFs). AUM of gold ETFs have nearly doubled in the last one year.
Assets of mutual funds in gold ETFs have jumped 95 per cent to Rs 55,677 crore as of February 2025 as against Rs 28,529 crore in the same period of last year, according to data from the Association of Mutual Funds in India (AMFI).
Gold ETFs allow investors to get exposure to gold without physically owning it, tracking the price of gold and trading like stocks on exchanges. They are a convenient and liquid way to invest in gold, since they can be easily bought and sold on exchanges and investors don’t need to worry about storing or insuring physical gold.
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. Also, there are concerns of purity and theft while investing in physical gold, which is not the case with Gold ETFs, according to ICRA Analytics.
According to the World Gold Council (WGC), anecdotal reports suggest that the strong inflows in January can be attributed to investors redirecting free cash flow towards gold ETFs for diversification amid ongoing global and domestic economic and policy uncertainty. “The sustained weakness in the domestic equity markets has also been driving flows into gold ETFs, with investors pulling back from equities in favour of the safe-haven appeal of gold,” WGC said.
Gold prices have shot up by 40 per cent in the last 12 months. Gold 999 variety is now quoted at Rs 86,140 per 10 gm in Mumbai. There are as many as 17 Gold ETF schemes in the market and the average one-year returns were in the range of 29.12 per cent while 3- and 5-year returns were 16.93 per cent and 13.59 per cent, respectively.
However, the gold ETF category recorded net inflows of Rs 1,979 crore in February 2025, significantly lower than the
Rs 3,751 crore inflows in January. “The decline in inflows can be attributed to profit booking, as gold surged to an all-time high last month, prompting investors to lock in gains. Additionally, equity market corrections presented attractive buying opportunities, leading some investors to shift focus from gold ETFs to equities,” said Nehal Meshram, senior analyst-manager research, Morningstar Investment Research India.
“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,” ICRA said. 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.
India is estimated to be the second-largest gold consumer in the world after China. There were expectations of high gold demand during 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.
Silver ETFs also gains
Silver ETFs have also seen massive growth in AUM, crossing the Rs 13,500 crore mark as of January 2025. There are 12 silver ETFs with more than 6 lakh investor folios between them as of January 2025. On the historical transaction volumes of silver ETFs, Vaibhav Jalan, CBO of Zerodha Fund House said, “The increasing transaction volumes of silver ETFs are a clear indication of growing investor interest. These ETFs offer an alternative to physical silver ownership, addressing concerns about storage, security, and insurance while providing access to silver’s price movements.”
Since 2021, the demand for silver has outpaced its supply. This versatile metal is both a valuable commodity and a crucial component in various industries, including solar energy and automotive manufacturing. Silver’s diverse applications, from industrial uses to jewellery, digital photography and investment also contribute to its demand, according to Zerodha.
