Dhanteras 2024: Should you invest in Gold ETFs? Know returns, trends and more

Dhanteras 2024: As Dhanteras approaches, are you planning your next gold purchase? While traditional options like jewellery and coins remain popular, digital alternatives such as Gold ETFs offer a modern and convenient way to invest. With rising interest in these exchange-traded funds, they could be the smart choice for those seeking a secure and flexible way to add gold to their portfolio this festive season.

Surge in Gold ETF inflows

Gold ETFs have gained notable momentum in 2024. Inflows into Gold ETFs surged by 88 per cent, reaching Rs 1,232.99 crore in September, compared to Rs 657.46 crore in January. Over the last five years, the assets under management (AUM) in Indian Gold ETFs have grown over sevenfold from Rs 5,613 crore in 2019 to Rs 39,823 crore in September 2024, according to a report by ICRA Analytics.

This sharp rise in Gold ETF investments, driven by both domestic and global factors, reflects the growing preference for digital gold over its physical counterpart.

Global market trends also support this surge. The World Gold Council’s September 2024 report highlighted that global assets under management for Gold ETFs grew by 5 per cent, reaching $271 billion, with total holdings increasing by 18 tonnes to 3,200 tonnes.

What are Gold ETFs?

Gold ETFs offer distinct advantages over physical gold, especially in the context of convenience and safety. Unlike physical gold, Gold ETFs eliminate concerns related to storage, theft, and purity. They are traded on exchanges like stocks, allowing investors to easily buy and sell units. Moreover, they track the domestic price of gold, providing transparency and liquidity.

The current geopolitical scene further fuels investor interest in Gold ETFs. With escalating tensions in various parts of the world, gold’s status as a "safe-haven" asset has strengthened, making it a considerable option during volatile periods. Additionally, as investors seek to hedge against inflation and potential market instability, Gold ETFs provide a cost-effective alternative to holding physical gold.

Why should you consider Gold ETFs?

Gold ETFs offer several advantages that make them an attractive option for investors. One of the key benefits is liquidity, as they can be easily bought and sold on stock exchanges, providing the flexibility to trade at any time. Additionally, they eliminate the costs associated with physical gold, such as storage, insurance, and making charges, making them more cost-efficient. Transparency is another important feature, as Gold ETFs are directly linked to the market prices of gold, allowing investors to track their performance with ease. Moreover, they offer greater safety since there’s no risk of theft or concerns about the purity of the gold. For investors looking to diversify their portfolios, Gold ETFs provide a hedge against market volatility and inflation, making them a balanced and practical choice.

Performance of Gold ETFs

In terms of performance, Gold ETFs have shown robust returns, rivalling physical gold. The average one-year return for Gold ETFs stands at 29.12 per cent, with three-year and five-year returns at 16.93 per cent and 13.59 per cent, respectively.

Notably, the LIC MF Gold ETF led the pack with returns of 29.97 per centover one year, 17.47 per cent over three years, and 13.87 per cent over five years. While these returns are slightly lower than those of physical gold, which delivered 30.13 per cent over one year, 18.03 per cent over three years, and 14.88 per cent over five years, the ease and safety of Gold ETFs make them a highly attractive investment option.

"Gold ETFs are ideal for investors with a short- to medium-term horizon," said  Ravi Singh, SVP - Retail Research at Religare Broking Ltd.

"A 'buy-on-dips' strategy works well, as price corrections can provide favourable entry points. In today's market, where equities are fluctuating, allocating a portion to gold not only hedges against inflation but also helps balance risk effectively," Singh added.

The potential for gold prices to rise further has also been highlighted by Goldman Sachs in their recent analysis. The bank expects gold to see substantial price increases due to the anticipated rate cuts by the US Federal Reserve, which would likely prompt Western investors to return to the gold market.