Investors hugely favour investing in gold ETFs in 2024

Gold exchange-traded funds (ETFs) have piqued significant interest among investors recently.

Going by the recent numbers, the total inflows in gold ETF was ₹ 31,224 crore in 2023-34 compared to ₹ 22,737 crore in 2022-23, as per the Association of Mutual Funds in India (AMFI) data.

Similarly, the Assets Under Management (AUM) of gold ETFs jumped to ₹ 32,789 crore at April-end as against ₹ 31,224 crore in March 2024, as per the data.

Average returns has been up to 18% in 2023 for investors of gold ETFs.

At the same time, a significant spurt has been witnessed in the folio numbers in gold ETFs as well. The numbers stood at more than 1 lakh to 51.84 lakh from 50.61 lakh in March 2024.

Key catalysts for spurt in Gold ETFs

There are multiple reasons why gold ETFs have emerged as a preferred mode of investment in the recent past. Typically, gold ETFs are passively-managed mutual funds that invest in standard gold bullion with 99% or more purity. Gold ETFs aim to mimic the domestic physical gold price.

In India, gold ETFs operate using a fund of funds (FoFs) structure and the underlying asset for such a mutual fund is physical gold. So, any movement in the price of physical gold tends to have a direct impact on the value of gold ETFs.

Being in digital or paper form, they are relatively safe and secure as an asset class. Also, unlike any form of gold jewellery, gold ETFs do not invite any making charges.

As gold ETFs are traded on exchanges, which come under the ambit of the markets regulator Securities and Exchange Board of India (SEBI), investors, the investment is regarded as secure.

Moreover, the pricing of gold ETFs are similar to physical gold. Also, at the time of redemption an investor receives the cash equivalent and not physical gold.

An investor in gold ETF units should remain mindful of the tax implications. Capital gains on Gold ETF units held for over three years come under the Long-Term Capital Gains (LTCGs) gamut. In this case, the tax rate is at 20% with an indexation benefit.

Similarly, any holding period of less than three years draw Short-Term Capital Gains tax, which is the tax rate as per an individual’s tax slab.