Gold ETFs shine bright in 2023

During the year, the folio numbers in gold ETFs saw a notable increase, rising by 2.73L to reach 49.11L in Dec 2023 from 46.38L in Dec 2022. Apart from 2023, gold emerged as one of the better performing asset classes in the challenging investment environment of 2020 and 2021 that was posed by covid and economic downturn. An inflow to the tune of Rs4,814-cr was seen in the segment during 2021 and Rs6,657-cr in 2020

Driving The Surge

• Higher inflation
• Hike in interest rates
• War between Israel and Hamas
• Geo-political unrest

New Delhi: Gold Exchange Traded Funds (ETFs) witnessed a significant influx of Rs2,920 crore in 2023, marking a six-fold surge compared to the previous year, as investors preferred this traditional safe haven amid higher inflation, subsequent hike in interest rates and geo-political events. Additionally, the asset base of gold ETFs and investors’ accounts experienced growth in the year, latest data from the Association of Mutual Funds in India (Amfi) showed.

According to the data, Gold ETFs witnessed an inflow of Rs2,920 crore in the entire 2023, which was way higher than the Rs 459 crore inflow seen in 2022. Notably, the segment attracted Rs 1,028 crore in August 2023, which was the highest inflow in 16 months. The attractiveness of gold as a safe haven and a hedge against inflation enhanced significantly during the year. Investors turned to seeking a secure investment option.

“Higher inflation and subsequent hike in interest rates augured well for gold. Moreover, heightened geopolitical tension triggered due to the war between Israel and Hamas made it an attractive and safe investment destination for investors,” Himanshu Srivastava, Associate Director – Manager Research at Morningstar Investment Research India, said.

Vishal Jain, CEO at Zerodha Fund House, said that Indians have had a centuries-long affinity with physical gold while investment products such as Gold ETFs have been slower in terms of adoption. “Over the years, investors’ comfort with digitization, ease of access, and a wider palette of products to choose from has been a reason for Gold ETFs becoming an option. Given the volatility we have seen this is a good move given gold is a must-have in every portfolio,” he added. The inflow played a crucial role in driving the assets under management (AUM) of gold funds up by over 27 per cent, reaching Rs 27,336 crore by the end of December 2023, compared to Rs 21,455 crore a year earlier.

Gold, with its superlative performance over the last few years, has garnered substantial investor interest and the consistent increase in folio numbers serves as a testament to its attractiveness. During the year, the folio numbers in gold ETFs saw a notable increase, rising by 2.73 lakh to reach 49.11 lakh in December 2023 from 46.38 lakh in December 2022. This indicates a growing inclination among investors towards funds related to gold.

Apart from 2023, gold emerged as one of the better performing asset classes in the challenging investment environment of 2020 and 2021 that was posed by covid and economic downturn. An inflow to the tune of Rs 4,814 crore was seen in the segment during 2021 and Rs 6,657 crore in 2020. “Gold functions as a strategic asset in an investor’s portfolio, given its ability to act as an effective diversifier, and alleviate losses during tough market conditions and economic downturns. This is where it draws its safe-haven appeal,” Morningstar’s Srivastava said.