Gold ETFs draw investor interest ahead of Dhanteras, inflows surge by 88% YTD: ICRA Analytics

With better liquidity and transparency in the Gold ETFs (exchange-traded funds) the investors seem to be turning their heads towards these funds ahead of Dhanteras, according to an analysis by Investment Information and Credit Rating Agency (ICRA).

Gold ETFs have witnessed a surge of 88% on a year-to-date (YTD) basis at Rs 1232.99 crore in September 2024, up from Rs 657.46 crore in January, states the same report.

“Gold ETFs (Exchange Traded Funds), which have witnessed over seven-fold surge in AUM (Assets under Management) 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 flavor of the season ahead of the Dhanteras,” said ICRA Analytics.

Gold ETFs have been increasingly gaining popularity among investors due to liquidity, transparency and global price alignment, which is evident with inflows into the fund surging by a whopping 2,695% from Rs 44.11 crore in September 2019 to Rs 1232.99 crore in September 2024.

“Investors favor 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 US Federal Reserve in the coming months,” Ashwini Kumar, Senior Vice President and Head of Market Data at ICRA Analytics said.

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 about purity and theft while investing in physical gold, which is not the case with Gold ETFs.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% while 3-year and 5-year returns were 16.93% and 13.59% respectively.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.

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