Dhanteras 2025: Gold ETF assets cross $10 bn after record inflows; why are investors turning to gold ETFs?

Gold exchange-traded funds (ETFs) in India have achieved a major milestone, crossing $10 billion in assets under management (AUM) after a wave of record inflows in September 2024. Data from the World Gold Council (WGC) shows that gold ETFs attracted $902 million (7.3 tons) during the month, pushing total holdings to a record 77.3 tons — a clear sign of investors’ growing preference for financial gold over physical holdings.

This surge has made 2024 the strongest year on record for gold ETF inflows in India, with $2.18 billion invested so far. This far surpasses previous annual inflows of $1.28 billion in 2024, $295 million in 2023, and just $26 million in 2022. The trend indicates a decisive structural shift — from traditional jewellery and coins to digitally managed, exchange-listed gold investments.

According to Vikram Dhawan, Head of Commodities at Nippon India Mutual Fund, which manages the country’s largest gold ETF, even investors who previously had minimal or no exposure to gold are now increasing their allocations. “Investors are pouring substantial funds into gold as a hedge against market volatility and inflation,” he said. Urban investors, particularly from Tier-I cities, are driving this momentum as they seek alternatives to physical gold.

Dhawan added that investors are now treating any correction in gold prices as a buying opportunity — a mindset shift that suggests sustained inflows into gold ETFs even amid short-term price dips.

The inflows coincide with a massive rally in gold prices. Domestic prices have surged nearly 60% in 2024, following a 21% rise last year. Gold recently hit a record Rs 1.22 lakh per 10 grams, reflecting both strong domestic demand and global uncertainty. According to the WGC, the surge was driven by a weaker rupee, sluggish equity markets, and geopolitical concerns, which pushed investors to seek safe-haven assets.

The growing preference for ETFs has wider macroeconomic implications. Increased inflows are likely to boost gold imports, supporting international gold prices but also widening India’s trade deficit and adding pressure on the rupee. Policymakers are closely monitoring the trend as India remains one of the world’s largest consumers of gold.

Why are people choosing Gold ETFs

In a recent post on X (formerly Twitter), CA Nitin Kaushik explained the rising appeal of Gold ETFs over Gold Mutual Funds and outlined the key differences investors should consider in 2025.

Gold ETFs, he noted, are traded on stock exchanges, offering real-time pricing, intra-day liquidity, and lower expense ratios (typically 0.5–1%). However, they require a demat and trading account, and investors must account for brokerage fees and bid-ask spreads.

Gold Mutual Funds, in contrast, don’t require a demat account and are beginner-friendly, allowing SIPs starting as low as ₹500. They have slightly higher expense ratios (1–1.2%) and some funds levy exit loads. NAVs for these funds are updated once daily, unlike ETFs, which can be traded instantly during market hours.

Liquidity, Kaushik noted, is a defining difference. ETFs can be sold anytime during trading hours, whereas gold funds are redeemed at end-of-day NAV. Over five years, assuming an 8% gold CAGR, ETFs may yield around 8%, while gold funds could deliver about 7.5%, compounding to roughly ₹14.7 lakh vs ₹14.4 lakh on a Rs 10 lakh investment.

Kaushik also highlighted changes in taxation. Under Section 50AA, for units purchased after April 1, 2023, gains from gold ETFs or gold funds are now treated as short-term capital gains, with no indexation benefit.

He concluded that Gold ETFs suit active, cost-conscious investors who value liquidity and direct market participation, while Gold Mutual Funds cater to SIP-based, convenience-focused investors who prefer simplicity over active trading.

As investors diversify amid global uncertainty, India’s record-breaking gold ETF inflows signal a powerful shift toward digital gold as a strategic, inflation-resistant investment — blending the age-old appeal of gold with the modern efficiency of markets.