Gold ETFs monthly inflow increases to ₹1,961 crore, physical gold held by Indian Gold ETFs doubles to 54.5 tonnes

Gold is widely referred to as a safe haven as it tends to retain its value or even rise in times of global uncertainty and market volatility. During a time when there is market turbulence, people shift to buying safer assets like gold. Gold ETFs (Exchange-Traded Funds) provide all the benefits of buying gold along with taking away any concerns of storage or authenticity.

Today, Gold ETFs have become a popular investment tool for investors who seek to have a safe portfolio and long-term returns. Physical gold held by Indian Gold ETFs has almost doubled over the past four years, reaching a record high of 54.5 tonnes as of October 31, 2024, increasing from 27.4 tonnes in the same period four years ago, Moneycontrol reported citing data by the World Gold Council.

The gold rush is aided by escalating geopolitical risks, policy changes by the RBI and volatility in the markets, the report added.

Both individual and institutional investors have been investing more in Gold ETFs. Further data from the Association of Mutual Funds in India (AMFI) showed that there is a surge in investor interest among Indians for Gold ETFs, with net inflows reaching ₹1,961 crore in October. This is a notable increase from ₹1,233 crore inflows in September. Since January 2020, Gold ETFs have reportedly seen a cumulative net inflow of ₹24,153 crore.

Indian gold ETFs have experienced significant inflows in the last 15 years, especially during periods of uncertainty in 2011, 2020 and 2024. Data indicates that domestic gold ETFs saw the highest inflows in these years, adding 17, 14 and 12 tonnes, respectively, the Moneycontrol report added.

What are Gold ETFs?

An ETF is a pooled investment tool that can be purchased and sold like individual stocks. It is a collection of investments (such as stocks, bonds, or commodities) which lets you invest in several securities at once. When you buy an ETF, you get the ease of trading stocks but also the benefit of diversifying your portfolio by investing in other securities like mutual funds.

A Gold ETF specifically tracks the price of gold. When you invest in a Gold ETF, you are basically investing in the price of gold itself, without having to worry about buying physical gold or storing it.

While buying a Gold ETF, you buy shares of the ETF, and the price of those shares moves up and down based on the price of gold.

Unlike buying gold jewellery or other gold items, you don't need to store the gold or worry about its security or authenticity. You can own shares in the ETF that represent the value of gold. People invest in Gold ETFs as it’s easier to buy and sell shares of a Gold ETF on the stock market than to buy, store the gold and sell it later to make profits.

As gold is often seen as a safe investment during times when the economy is unstable, or when inflation is high, because its value tends to rise when other investments including equities and currencies are falling, Gold ETFs are also considered as a safe investment with the added benefit of convenience.

Gold ETFs are backed by actual physical gold. A physically-backed Gold ETF means that the ETF holds actual gold in reserve to back the shares it issues. For every share of the ETF that investors buy, there is a certain amount of physical gold stored in a secure vault like a bank or a professional vault. The gold can be backed in dematerialised nature as well, which means that the gold is held in electronic form rather than in physical bars or coins, like shares. This is done for convenience, safety and liquidity.

There are also non-physically backed, or synthetic ETFs. These ETFs do not hold physical gold as they invest in financial instruments like gold futures, options or other derivatives that track the price of gold. Synthetic Gold ETFs are considered riskier than physically backed Gold ETFs as they are associated with counterparty, price tracking and liquidity risks.

Gold prices on November 12

Gold prices dropped by ₹600 per 10 grams in early trading on Tuesday, November 12, as the precious metal fell to a near-month low in global markets. Gold’s appeal as a safe-haven investment has been slipping away due to a stronger dollar and rising US bond yields. The price of 24K gold declined by ₹600 to ₹78,900 per 10 grams and 22K gold by ₹550 at ₹72,340 per 10 grams. On the global front, spot gold was trading in a range at $2,624 per ounce, up 0.05% in early Asian trade.