Market volatility sparks growing interest in gold ETFs in India
Mon Feb 10 2025
In recent years, India’s investment landscape has undergone a transformation, with an increasing focus on financial assets. As per the Economic Survey 2024, approximately 20 per cent of Indian households now allocate their savings to financial market.
In India, gold has been a symbol of wealth, stability and value for centuries.
Additionally, it serves as an effective hedge against inflation and offers
portfolio diversification. While physical gold has traditionally been used to
preserve wealth, especially during economic uncertainty, gold exchange traded
funds (ETFs) have revolutionised the way people can invest in gold. These ETFs
combine the security of gold with the liquidity and convenience of the stock
market, offering an appealing alternative in uncertain times.
The appeal Amid rising stock market volatility, Indian investors are
increasingly turning to gold ETFs as a safe-haven investment. As global and
domestic financial markets experience heightened uncertainty, gold’s
traditional reputation as a stable and reliable asset has fueled a surge in
demand for gold ETFs in India.
Further, escalating geopolitical tensions, global economic slowdowns, inflation
concerns, changes in central bank policies and volatility in the equity market
have contributed to sustaining the ongoing gold rush. These funds allow
investors to gain exposure to gold without the complications of buying physical
gold.
Understanding gold ETFs
Gold ETFs are funds that track the price of gold, with each unit representing a predefined amount (typically 1 gram). The value of the ETF fluctuates in line with the market price of gold thus offering a transparent way to track the performance of gold.
These funds invest in physical gold of 99.5% purity and are traded on the
exchanges. Investors need a demat account to store the ETF units and a trading
account to buy and sell ETFs. Governed by SEBI, Gold ETFs also allow investors
to invest small amounts thus enabling fractional ownership, making it easier
for investors to get exposure to gold without needing a large sum upfront.
Upstaging physical gold
The price of physical gold includes additional costs such as making charges,
wastage, and GST. A major risk of purchasing physical gold is the risk of
buying counterfeit or impure gold. Storing physical gold also comes with risks
of theft, damage and securing it in bank vaults or home safes requires added
costs for locker rent and insurance.
In contrast, gold ETFs typically have lower transaction costs and eliminate the
need for storage and insurance. They can be easily bought and sold with a
single click, providing a hassle-free investment experience. They offer greater
liquidity and convenience for buying and selling, making them a more flexible
option than physical gold.
Additionally, gold ETFs can be used as collateral for loans, providing further
financial flexibility for investors. They offer a cost-effective and secure
alternative to owning physical gold, eliminating the need for storage, insurance
and concerns about the authenticity of gold
Conclusion
Gold ETFs have emerged as a smart and efficient investment vehicle to gain
exposure to gold. Investors can consider allocating 5-10% of their portfolio to
Gold ETFs as a prudent strategy for balancing risk and portfolio
diversification. Whether you are looking for a safe-haven investment, a tool
for diversification or a way to hedge against inflation, gold ETFs provide a
reliable way to add gold to your portfolio. With the added flexibility of
fractional ownership and the ability to invest small amounts, gold ETFs offer
an accessible option for both seasoned and novice investors alike.
Source: https://www.deccanherald.com