In a notable surge, October 2023 witnessed the highest inflows of funds into Gold Exchange-Traded Funds (ETFs) than any other month this year, amounting to Rs 1,069.51 crore, data from the Association of Mutual Funds in India (AMFI) show. This significant capital influx indicated heightened investor activity due to Dhanteras and Diwali.
Amidst this surge, the net inflow of Gold ETF during the month was Rs 841.23 crore, showing investor sentiments towards safe-haven assets amid global volatility and geopolitical tensions. The repurchase/redemption for October amounted to Rs 228.28 crore. In comparison, August's net inflow was Rs 1,028.06 crore, and the redemptions amounted to only Rs 22 crore.
Gold ETF Analysis for Samvat 2079
The year 2023 saw an increase in Gold ETF schemes from 11 to 13, with 48,33,807 Gold ETF folios by the end of October. While the funds mobilised remained relatively stable throughout the year, notable spikes were observed in July, August, and October.
ETFs experienced outflows only in January and March, showcasing their resilience in attracting investments during various market conditions.
Understanding Gold ETFs
Gold ETFs are exchange-traded funds that mirror the price of physical gold in the domestic market. They offer investors a means to gain exposure to gold without owning physical gold. Each unit corresponds to one gram of physical gold, making it accessible to investors of all sizes.
These ETFs blend the flexibility of stock investments with the simplicity of gold investments. Investors can sell Gold ETFs on the stock exchange through a broker, using demat trading account. Upon liquidation, you receive the payment based on the current domestic gold market price. ETFs are considered tax-efficient to hold gold, as their income is treated as a long-term capital gain.
Performance of Gold ETFs; Investment Considerations
A study by financial technology company Small Cap Technologies revealed that gold has returned an average of 11.2% Compound Annual Growth Rate (CAGR) in the last 20 years.
While the last 5 years showed a mix of positive and negative returns, the overall trend remained positive. Gold experienced positive returns in 2018 (7.3 per cent), 2019 (21.3 per cent), 2020 (28
per cent), and 2022 (10.8 per cent). In 2023, gold has gained 3.3 per cent, maintaining a CAGR of 11.2 per cent.
Notably, physical gold price is the sole factor influencing Gold ETF prices. As of November 13, 2023, among the 10 ETFs listed on AMFI, the average one-year category return is 16.23 per cent, while the three-year return is 5.32 per cent, and the 12-year return is 12.93 per cent. This suggests that ETFs have recently entered a bull run and can be considered for short-term investments if seeking returns.
