Gold ETF inflows rise 35% in March. Is it better to invest in ETFs than physical gold?

Investors seem to have turned their attention to Gold ETFs, as March 2021 has seen a sharp 35% surge (MoM) in monthly flows in Gold ETF, according to the latest AMFI data.

Gold prices which had run up sharply in 2020 have eased about Rs 10,000 – Rs 12,000 from record highs of Rs 56,200 seen in August 2020. This fall in gold prices has attracted investors to Gold ETFs.

Gold ETF schemes saw net investments of Rs 662 crore in March 2021 as compared to Rs 491 crore in the previous month.

NS Venkatesh, Chief Executive, Association of Mutual Funds in India (AMFI) commenting on the surge in inflows in such schemes had said, “Safe-haven demand along with other factors may have caused some inflows in Gold ETF,”

The number of new folios added under the Gold ETF category more than doubled to 12.99 lakh in March 2021,
from 5.26 lakh in March, 2020. It has risen by 16% (over 2 lakh) in March 2021, as compared to the previous month. As on March 31, 2021, net assets under management for Gold ETF stood at Rs 14,122 crore.

Gold ETFs are passive investment instruments based on gold prices. Compared to physical gold investments, they are less expensive. An investor here has the flexibility to purchase as low as one unit of gold which comes to approximately Rs 42. Furthermore, this purchase will be in electronic form, saving an investor from the hassle of storage and security and the worry of gold purity.

Is investing in Gold ETF better than physical gold?

Gold is considered to be one of the best instruments to invest in when looking out for an inflation hedge. In fact, the price of gold is also directly proportional to the rate of inflation.

However, a lot of investors prefer to invest in digital gold forms to avoid concerns related to storage, chances of theft, purity concerns, or even the risks of visiting a jeweller amid the pandemic.

Given the problems associated with physical gold, investors have now started moving towards digital gold i.e. gold ETFs, gold mutual funds, or sovereign gold bonds.

Speaking specifically about Gold ETFs, one knows that this form is unique in the sense it combines the flexibility of a stock investment while aiding an investor to take exposure to the yellow metal.

Gold ETFs are also tax efficient in nature as the income earned from Gold ETFs held for over three years is eligible to be treated as long-term capital gain tax with cost indexation benefit.

One can buy and sell Gold ETFs similar to the way one trades in the stock market. They are listed and traded on stock exchanges and can be bought and sold regularly at market prices. Unlike jewellery, coins and bars, units can be liquidated according to investors’ requirements. It can be bought and sold at Real-Time NAV (Net Asset value) on exchanges and is also accepted as collateral for loans.

Anuj Gupta, Vice President — Commodities & Currencies at IIFL Securities said, “Gold ETF is always good for investment as one can invest in gold ETFjust like SIPs. We have witnessed that last year more than 1000 tonnes have been added through gold ETF in gold investments during the pandemic.”

Experts also believe that for investors looking to build a well-rounded portfolio or simply seeking to accumulate gold units, Gold ETFs have emerged as a convenient and cost-efficient option to take exposure to the yellow metal.