Gold ETFs get Rs 7,367 crore inflow in 2024 with no new gold bond issue in last 9 months
With the calendar year 2024 having seen the launch of only one
Sovereign Gold Bond (SGB) scheme so far, inflows in gold ETFs have more than
doubled in 2024 to Rs 7,367 crore vs Rs 2,919 crore in 2023.
With the government announcing premature redemption of Sovereign Gold Bonds (SGBs)
that have completed five years in August indicates that there will be no new
SGB issued going forward. Based on the data, in 2024 so far, only one SGB has
been issued compared to four issued in calendar year 2023 which has shifted the
interest of investors towards Gold ETFs with the category receiving Rs 7,367 crore
inflows in calendar year 2024 so far.
In the calendar year 2023, Gold ETFs received Rs 2,919 crore inflows. The total inflows in 2024 have seen a growth 152% on a year-on-year basis. The interest of investors in gold has surged driven by many factors with the US Fed adding fuel to the demand of the precious metal.
“In August 2024, the Government announced the premature redemption dates for Sovereign Gold Bonds (SGBs) that had completed five years. These bonds offer an annual interest rate of 2.5%, paid semi-annually, along
with returns linked to changes in gold prices. The gains are also tax-free if held till maturity of eight years,” said Rajesh Minocha, a Certified Financial Planner (CFP) and founder of Financial Radiance
“Currently, it appears unlikely that new SGBs will be issued. Interest in gold has surged, driven by geopolitical tensions and aggressive gold purchases by global central banks. Additionally, the U.S. Federal Reserve’s
interest rate cuts have further fueled demand for the precious metal,” he added.
Out of Rs 7,367 crore inflows, Gold ETFs have received Rs 5,339 crore in FY25
so far. In FY24 so far, Gold ETFs have offered an average return of 21.63% with
Invesco India Gold ETF
offering the highest return in the same period. Axis Gold ETF gave the
lowest return of 21.30% in the same period.
According to the expert, investors should proceed with caution and should comprise 8-10% of the total portfolio. “Amid this environment, investors have shown increased interest in Gold ETFs. However, caution is advised. Gold investments should comprise only 8-10% of an investor's total portfolio to ensure balanced diversification. For those seeking a systematic approach, gold mutual funds are available, allowing investments via Systematic Investment Plans (SIP),” recommended Minocha.
“Gold has historically served as a hedge against political uncertainty.
However, over the long term, the focus on gold may decline, making it essential
for investors to reassess their asset allocation strategies regularly,” he
added.
Sovereign Gold Bonds (SGBs) are government securities denominated in grams of
gold. They are substitutes for holding physical gold. Investors have to pay the
issue price in cash and the bonds will be redeemed in cash on maturity. The
Bond is issued by the Reserve Bank on behalf of the Government of India. Though
the tenor of the bond is 8 years, early encashment/redemption of the bond is
allowed after the fifth year from the date of issue on coupon payment dates.
The bond will be tradable on Exchanges, if held in demat form. It can also be
transferred to any other eligible investor, according to the RBI.
These bonds offer an annual interest rate of 2.5% which is paid semi-annually
along with the returns which are linked to changes in gold prices. If these
bonds are held till maturity, the gains are also tax-free.
According to Association of Mutual Funds in India (AMFI), a Gold ETF is an
exchange-traded fund (ETF) that aims to track the domestic physical gold price.
They are passive investment instruments that are based on gold prices and
invest in gold bullion. Gold ETFs are units representing physical gold which
may be in paper or dematerialised form. One Gold ETF unit is equal to 1 gram of
gold and is backed by physical gold of very high purity. Gold ETFs combine the
flexibility of stock investment and the simplicity of gold investments.
Source: https://economictimes.indiatimes.com/