Gold investment in Dhanteras: Gold prices have reached record levels just days before Diwali 2024, with prices soaring to Rs 79,000 per 10 gm. Despite this, the demand for gold is expected to remain strong throughout the festive season and the rest of the year, driven by the wedding season, as stated by the World Gold Council.
The year Samvat 2080 saw significant gains for investors in precious metals, with gold increasing by 39.7% and silver by 44.3% over the past year.
Gold investment has long been a tradition in India, with individuals typically purchasing gold coins and jewelry as a means of investment. However, there has been a noticeable shift towards investing in gold mutual funds and gold exchange-traded funds (ETFs) in recent times. Upon comparison, it has been observed that physical gold has shown superior performance in terms of long-term absolute returns when compared to gold ETFs.
Physical gold is a tangible commodity asset that can be bought and sold in many forms. The gold is purchased in the form of coins, bars or jewellery. Physical gold is owned directly by an individual or organisation.
Other forms of gold investment include gold ETFs (Exchange-Traded Funds), gold mutual funds, sovereign gold bonds. Gold ETFs (Exchange-Traded Funds) offer investors the opportunity to purchase shares representing a collection of gold or gold-related assets that are traded on the stock market.
On the other hand, gold mutual funds are investment vehicles that combine resources from multiple investors to purchase gold or securities linked to gold. This allows individuals to participate in the price fluctuations of gold without the burden of storing and safeguarding physical gold.
Performance of physical gold vs gold MF vs gold ETFs
Physical gold
In the last year, investors in precious metals like gold and silver saw significant returns with gold jumping 39.7% and silver increasing by 44.3%. In comparison, India’s benchmark equity indices, BSE Sensex and NSE Nifty50, had gains of 25.1% and 27.9% respectively during the same period.
The price of gold has experienced a significant upward trend in recent years. On October 21, 2023, the price of gold stood at Rs 61,690, rising to Rs 80,420 by October 21, 2024, representing a substantial increase of Rs 18,730 within one year. Comparatively, the price of gold on October 21, 2021, was Rs 47,570, indicating a rise to Rs 80,420 by October 21, 2024, amounting to a total increment of Rs 32,850 over a three-year period, equating to a return of approximately 68.9%.
Furthermore, tracing back to October 21, 2019, when the price of gold was Rs 38,500, the value has surged to Rs 80,420 by October 21, 2024, resulting in an escalation of Rs 41,920 over a five-year span, offering a return of approximately 108.9%. These figures demonstrate the substantial growth in the price of gold over the specified time frames.
Gold ETFs
There are currently 17 Gold ETF schemes available in the market, with an average one-year return of 29.12%. The top three gold ETFs in terms of assets managed are Nippon India ETF Gold BeES, HDFC Gold ETF, and SBI Gold ETF.
Over a 3-year period, the average return was 16.93%, and over a 5-year period, it was 13.59%. LIC MF Gold ETF stood out with the highest returns across all time frames, with a 1-year return of 29.97%, a 3-year return of 17.47%, and a 5-year return of 13.87%. These returns are slightly below the average returns of physical gold, which stood at 30.13%, 18.03%, and 14.88% over the same time periods.
Gold Mutual funds
Gold mutual funds are comprised of funds of funds, meaning they allocate the capital pooled from investors to other mutual fund schemes. Specifically with gold mutual funds, the raised funds from investors are invested into gold Exchange-Traded Funds (ETFs).
Axis Gold Direct Plan-Growth 1 year 27.16% 29.99%
Aditya Birla sun life gold fund 1 year 28.18% 29.99%
SBI Gold Direct Plan-Growth 1 year 27.62% 29.99%
Quantum Gold Savings Fund 1 year 27.44% 29.99%
HDFC Gold Fund 1 year 27.27% 29.99%
“Both Gold ETFs and Mutual Funds offer ease of buying & selling, along with liquidity, and flexibility, making them appealing choices for investors seeking convenience. Gold ETFs typically come with lower expense ratios compared to Gold Mutual Funds, potentially providing a more cost-effective way to invest in digital gold. However, the choice between the two ultimately depends on individual preferences and investment goals,” said Nikhil Behl, CEO- Stocks and Cofounder, INDmoney.