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 markets. Despite this shift, traditional assets such as physical gold still hold a prominent place in many investment portfolios.

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.

Courtesy: Deccan Herald