Gold as an investment has always held a certain allure and has historically delivered positive long-term returns and also worked well in improving a portfolio’s risk-adjusted-performance.
Gold ETF folios have witnessed an eight times increase from 4.23 lakh in December 2019 to 32.09 lakh in December 2021. During the same period, the AUM of gold ETF schemes witnessed a growth of 200 per cent from Rs 5,768 crores (equivalent to 14.8 metric tonnes) to Rs 18,405 crores (equivalent to 37.6 metric tonnes) of gold holding.
Financial advisors explain, gold as an investment has always held a certain allure and has historically delivered positive long-term returns and also worked well in improving a portfolio’s risk-adjusted-performance. Therefore, gold is considered a good hedge against inflation, systemic risk, and currency depreciation.
Buying gold ETFs means an investor is purchasing gold in an electronic form which is parked in a Demat account. Industry experts say every unit of Gold ETF is backed by physical gold. Chintan Haria, Head – Product Development and Strategy, ICICI Prudential AMC says, “An investor here has the flexibility to buy and sell units of gold ETFs at any time during the trading hours as it is listed and traded on the stock exchanges, just like the equity stocks.”
Note that, as there is no making charge here, the expenses associated with Gold ETF are much lower when compared to physical gold investments. Haria explains, “One need not worry about issues such as purity of gold, secure storage, etc. When investing through Gold ETFs, investors have the option to invest at regular intervals through systematic investment plans (SIPs) or opt for lump sum investment.” As a result, experts say Gold ETF is best used as a tool to benefit from the price of gold rather than to get access to physical gold i.e. investors can reap the benefits of investing in gold without having to buy the physical asset.
Having said that, while Gold ETFs bring diversity and secure the portfolio from market volatility, various other factors make this route of investment in gold lucrative. Prashant Joshi, Co-Founder and Partner, Fintrust Advisors LLP points out, “Gold ETFs score highest over any other form of digital or physical gold investment due to liquidity and being regulated by SEBI alleviates the biggest fear of investors, that is, purity.”
The volume of Gold ETFs portfolio surged more than 3 times from 9.7 lakh to nearly 32.1 lakh in 2021 as per AMFI data. “Various factors such as affordability since Gold ETFs can be brought as low as 1 unit (1 gram), tax efficiency, acceptability as collateral for loans, and rise in digital-savvy investors have mainly contributed towards driving this demand. Investors with a longer horizon can consider investing in Gold ETFs, allocating up to 10 per cent of their portfolio,” adds Joshi.
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