Page 30 - Bullion World Volume 5 Issue 1 January 2025

Bullion World | Volume 5 | Issue 01 | January 2025

Gold Exchange-Traded Funds

(ETFs) in India:

A Comprehensive Overview

Gold Exchange-Traded Funds (ETFs) have emerged as a key investment vehicle
in India offering investors a convenient and cost-effective way to gain exposure to
gold without the complexities of physically owning the metal. The evolution of Gold
ETFs in India has been marked by significant regulatory support, increasing investor
awareness, and the growing shift from physical gold to financial gold.

1. The inception of Gold ETFs in India (2007) grew, more investors began to shift their focus away from
• Launch of the first Gold ETF: The first Gold ETF physical gold (coins, bars, and jewellery) to financial gold
in India was launched by Benchmark Mutual on the in the form of ETFs, driven by the ease of trading and
NSE platform. lower costs.
• Structure of Gold ETFs: Gold ETFs in India are
open-ended mutual fund schemes that invest • Asset Growth: The gold ETF market witnessed
primarily in gold and gold related instruments significant growth in terms of assets under
(including Exchange Traded Commodity Derivatives management (AUM), especially during periods
and Gold Deposit Scheme of banks) and are listed of high gold prices (e.g., 2011-2012), when gold
and traded on stock exchanges. Each unit of the became a favoured asset class for investors seeking
ETF usually represents a specific weight of physical a hedge against inflation and global uncertainties.
gold (usually one gram or a fraction thereof). • The concept of Gold Fund of Funds (FoF) was
Investors can buy and sell ETF units like shares on introduced in India in 2011. This financial instrument
the exchanges. was launched to offer investors an indirect way
of investing in gold without the need to directly
2. Early Adoption (2007-2010) purchase or hold physical gold or even Gold
• Initial Growth: After the launch of Gold Bees, other Exchange-Traded Funds (ETFs). For the investor,
fund houses began launching their own gold ETFs. the minimum threshold investment dropped with the
Some of the prominent ones and the year of launch introduction of FoF.
in bracket are shown below: • In 2012, SEBI introduced AIF Regulations to
• HDFC Gold ETF (2010) govern Alternate Investment Funds (AIFs) in India,
• ICICI Prudential Gold ETF (2010) initially permitting investments in equity, debt, and
• SBI Gold ETF (2009) real estate. In 2015, SEBI clarified that Category
• Reliance Gold ETF (2009) III AIFs (including hedge funds, private equity, and
• Popularity: Gold ETFs started gaining traction other complex funds) could invest in Gold ETFs,
as they provided a more convenient and cost- enabling them to diversify their portfolios. This
effective way to invest in gold compared to buying clarification provided AIFs with an opportunity to
physical gold (which often involves high premiums include gold in their asset portfolios.
and storage concerns) in a regulated market
environment. As these units are traded on the 4. Market Volatility and Growth Challenges
stock exchanges, they offered liquidity and reduced (2015-2020)
transaction costs in comparison to physical market. • Volatility in Gold Prices: Between 2015 and 2020,
gold prices went through cycles of volatility. The
3. Rise in Popularity (2010-2015) demand for gold ETFs fluctuated, with investors
Increased Investor Awareness: As awareness of ETFs showing more interest during periods of rising gold

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