Why Gold ETFs have taken off in India

Gold Exchange Traded Funds have been around in India since 2007. Since then investors have taken a fancy to the investment instrument. “Gold ETFs started with an AUM of about 100 crore rupees. The figure today is 20,000 crore rupees,” said Mr Mehta. “So, we’ve come a long way”.

The pandemic, according to him, was a catalyst in getting people to invest in gold ETFs. “So until COVID, we had about five lakh or so investors in gold ETFs across. Today we are staring at 46 lakh investors in gold ETFs. So largely the big push came because of COVID in 2020, because of lockdowns, people were not able to buy physical gold given the uncertainty that prevailed,” added Mr Mehta.

Gold ETFs, according to Mr Mehta is “the best financial innovation”, because it “allows a retail investor to buy say 0.01 gram of gold at wholesale prices where tons and tons of gold is exchanged between say a gold producer and a bullion bank.” More crucially, it allows people to accumulate over a period of time and “still getting a good bang for the buck”. No one has to worry about aspects such as purity “because fund houses take care of it by buying authentic 24 carat gold backing each and every unit”, he added.

Additionally, there are no hassles of storing physical gold in a vault or a safe. “There are professional walls where the gold is stored and all of the gold is 100% insured. So from a safety perspective, there are no issues when it comes to Gold ETS gold that backs each and every unit for them”, said Mr Mehta.

Then there are monetary benefits too: “When you buy physical gold, it kind of comes in different forms and shapes. So there are markups, there are premiums, there are making charges and all sorts of costs get attached to physical gold buying”, he said. ETFs are devoid of such additional charges.

Investors are also getting warmed up to gold ETFs during auspicious occasions and festivals. “When it comes to the gold ETFs, you can accumulate very efficiently and then convert it to the piece of jewellery. So we say that for an investor to complete the gold value chain, they should start accumulating in the form of gold ETFs, and when it comes to consumption, they should convert it into physical form. So that way the value creation journey for an investor or for a buyer of gold is very, very efficient and complete when it is in this form”, added Mr Mehta.

Over time he has seen that the average holding period has been between three to five years, he added. “But there are many investors who have been with us, with our funds since our inception. So many are looking at the long term strategic role that gold plays within their portfolio, or some are looking at accumulating and then buying over a period of time”, reckoned Mr Mehta.

Indeed when compared with the mutual fund industry which totals to around 37 lakh crore rupees, gold ETFs are still a fraction of that figure. But it’s growing exponentially. All in all, gold ETFs have  taken off largely down to the convenience that it offers. “Gold ETFs have come a long way”, he added. “I think it's just the beginning”.

 Moneycontrol journalists were not involved in the creation of the article.