Why gold ETF should be your preferred choice for gold buying this Diwali

By Nitin Kabadi

Traditionally, festivals and weddings have been the major drivers for gold purchases, especially in the jewellery form. Around 20% of annual gold sales happen during Diwali.

According to the World Gold Council, India is estimated to have accumulated up to 25,000 tonnes of gold thus far. In financial year 2019, the value of India’s total gold import stood at Rs 2.3 lakh crore and the demand across India was over 690 tonnes.


The National Sample Survey Organisation in India pegs the average monthly per capita expenditure on gold and jewellery at Rs 494 for urban households, and at Rs 233 in rural households. This accounts for nearly 23% of durable purchases of households.

The 50% plus rally seen in gold has dazzled investors. Gold, which is seen as a portfolio hedge against inflation and a safe haven asset in times of economic uncertainties, has had a dream run so far this year. The unprecedented government and central bank stimulus worldwide to revive economies facing the coronavirus-induced strain has thus far supported the price of the yellow metal.

These factors have triggered a tsunami of inflows into gold ETFs not only in India, but also globally. As a result, what has been created is a self-serving loop of increasing uncertainties feeding into more inflows.

Rise of Gold ETFs
In India, total assets under management (AUMs) for gold ETFs surged to Rs 13,969 crore at the end of October, 2020 from Rs 5,652 crore at the end of September, 2019. Of these, the July- September quarter alone saw net inflows of over Rs 2,426 crore, which was 14 time more than total inflows seen during the same quarter last year. This shows how the recent spate of uncertainties has sparked demand for gold as a store of value.

For a country like India, which is the world’s second largest consumer of the yellow metal, investors taking exposure to gold through the ETF route is an encouraging sign. The focused approach of the mutual fund industry on creating awareness about gold ETFs, innovative communication by stakeholders through various channels of communication have helped ETFs gain investors’ mind space over the years.

Why consider Gold ETF?
When it comes to making gold purchases, especially for investment purposes, gold coin and bar tend to be the preferred options. However, all things taken into consideration, the ideal gold investment vehicle turns out to be gold ETFs. A gold ETF aims to track the price of domestic physical gold and invests in 99.5% purity gold bullion.

When you invest in a gold ETF, you purchase gold in an electronic form. One gold ETF unit is equal to 1 gm of gold and is backed by physical gold of very high purity. One can buy and sell gold ETFs just the way you trade in stocks.

Just like a stock of any company, gold ETFs are listed and traded on stock exchanges and can be bought and sold continuously at market prices. Hence, gold ETF combines the flexibility of stock investment and the simplicity of gold investments.

Since ETFs are held in demat form, one needn’t worry about the safety aspect. Also, the cost of acquisition in gold ETF is very low, given the absence of making charges and other related expenses. As a result, ETFs have much lower expenses compared with physical gold investment. One can even consider doing an SIP for as low as Rs 1,000 a month to collect gold units over time to meet future requirement.

This Diwali, while you are at home celebrating with your loved ones, do plan to buy gold as a part of the long-standing tradition in the form of gold ETF.

(Nitin Kabadi is Head of ETF Business at ICICI Prudential AMC. Views are his own)