Over 209 billion dollars are currently invested in physical gold by Gold ETFs globally. But in India, investment in gold by ETFs is in an early stage. Only 37 tons of gold are invested through ETFs in India. Indian ETFs account for 1% of physical gold ownership by global ETFs. This article explores the details of Gold ETFs in India
Gold ETFs in India are relatively a new asset class. Gold is the most popular investment commodity in India. Every household in India has some amount of their wealth invested in gold. Most people in India invested in gold directly in physical gold. Gold jewelry and gold coins are the most preferred ways of owning gold for Indians. Ultra-rich individuals and institutions hold some amount of gold bullions in portfolios.
Globally most of the investment in gold is through Exchange Traded Funds (ETFs). Gold ETFs provide easy and efficient access to gold markets. Investing in gold ETF is an excellent method for diversifying portfolios. This article explains what an investor needs to know when investing in Gold ETFs in India.
- What is the amount of physical gold invested by Gold ETFs in India
- Which is the largest gold ETF in India
- What are the benefits of Investing in Gold ETFs
What is the amount of physical gold invested by Gold ETFs in India?
Over 209 billion dollars are currently invested in physical gold by Gold ETFs globally. But in India, investment in gold by ETFs is in an early stage. Only 37 tons of gold are invested through ETFs in India. Indian ETFs account for 1% of physical gold ownership by global ETFs.
Starting from 2007, many institutions have been providing Gold ETFs in India. Although the industry has been in existence for more than 15 years, capital flows to Indian Gold ETFs have improved only at the time of the pandemic in 2020. And this trend is continuing as the gold holding of Indian Exchange Traded funds have more than doubled from 15 tons of gold in 2019 to 37 tons in 2022.
The government of India is promoting various digital measures for financial transactions and investments. This has improved the appetite for digital gold and storing wealth in other digital assets in India. Like ETFs, investors in India can invest in gold through Sovereign Gold Bonds issued by the Reserve Bank of India and mutual funds.
Most of the Mutual Funds in India invest in Gold ETFs rather than directly investing in gold. Investing in gold through ETFs provides direct exposure to gold spot prices. In contrast, Mutual Funds offer indirect exposure to gold prices as it tracks the performance of gold ETFs. Investment in gold by Indian Gold ETFs is expected to increase.
Which are the Largest Gold ETFs in India?
Nippon India ETF Gold BeES is the largest Gold ETF in India, with 12.9 tons of physical gold in its portfolio. HDFC Gold ETF is India’s second-largest gold ETF, with 5.9 tons of gold. With 5 tons of gold in its portfolio, SBI Gold ETF is the third-largest ETF in India. When we compare these gold holdings to the gold holdings of the largest gold ETF in the world, SPDR Gold shares which hold 875 tons of gold, it becomes clear that the gold ETF sector has a long way to go in India.
Nippon India ETF Gold BeES invested $822 million in Physical gold. At the same time, the investment of HDFC Gold ETF is valued at $378 tons. The bar graph below summarizes India’s largest gold ETFs based on the value of physical gold in their portfolios.
The list below summarizes India’s top 10 gold ETFs and corresponding holding of gold in tons.
- Nippon India ETF Gold BeES
- HDFC Gold Exchange Traded Fund
- SBI ETF Gold
- ICICI Prudential Gold iWin ETF
- Kotak Gold ETF
- UTI Gold Exchange Traded Fund
- Axis Gold ETF
- Birla Sun Gold ETF
- Quantum gold fund
- IDBI Gold ETF
- Invesco India Gold ETF
1. Nippon India ETF Gold BeES
Nippon India ETF Gold BeES is the largest gold ETF in India, with 12.9 tons of gold in its holding at the start of 2022. Nippon India ETF gold BeES is listed in the Indian stock market and trades like an equity share. This ETF is benchmarked to domestic gold spot price in Indian rupees. Nippon India ETF Gold BeES is an open-ended fund with no entry and exit load costs. The expense ratio of the fund is 0.7%.
Nippon India ETF Gold BeES is one of the oldest gold ETFs in India. Ownership of gold by Nippon India ETF Gold BeES has consistently increased from 1 ton in 2007 to 11 tons of gold in 2012. As gold prices reduced from 2013, gold holdings of the fund also reduced until 2019. Because of the pandemic, gold investments have increased, leading to an increase in the holding of gold in the last two years. The amount of physical gold managed by Nippon India ETF Gold BeES has risen from 7 tons in 2019 to 12.9 tons in 2022.
2. HDFC Gold Exchange Traded Fund
HDFC Gold Exchange Traded Fund is the second-largest gold ETF in India, holding 5.9 tons of gold. Starting in 2010 with 1.5 tons of gold, the amount of gold holding has remained between 1 to 2.5 tons from 2010 to 2019.
Holding of physical gold has more than tripled since 2019 as the physical gold holdings have grown from 1.6 tons in 2019 to 5.9 tons in 2022. The fund is traded in stock exchanges in India and benchmarked against the price of gold in India. The expense ratio of HDFC Gold Exchange Traded Fund is around 0.5%.
3. SBI ETF Gold
Issued by the most significant public sector bank in India, State Bank of India, SBI ETF Gold is India’s third-largest gold ETF, with 5 tons of gold under management. The fund is benchmarked to the domestic gold price in Indian rupees. Like a stock, this ETF trades on stock exchanges in India. The performance of SBI ETF Gold is highly correlated with the domestic price of gold.
SBI ETF Gold started its operations in 2009 with 0.6 tons of gold have grown significantly until 2012 to reach 4.5 tons of gold. Like most other Gold ETFs, gold holdings were reduced from 2013 to 2019 as the gold process started reducing and capital flows to the fund dried up. Gold holdings of SBI ETF Gold sharply increased from 2.1 tons in 2019 to the current level of 4.6 tons.
4. ICICI Prudential Gold iWin ETF
ICICI Prudential Gold iWin ETF is India’s 4th largest gold ETF with 4.6 tons of gold in its assets. Started in 2010, ICICI Prudential Gold iWin ETF was not a major player until 2019, and the gold holdings were below. 0.5 tons. Due to the pandemic, allocation to gold increased by investors, and this led to a spike in gold investment by ICICI Prudential Gold iWin ETF.
From 0.4 tons of physical gold in 2019, the assets have grown to 5.4 tons in 2 years. The amount of physical gold with ICICI Prudential Gold ETF was reduced by 10% at the beginning of 2022.
5. Kotak Gold ETF
Kotak Gold ETF is India’s fifth-largest Gold ETF with 4.4 tons of gold in its assets. Started in 2007 and benchmarked against the price of gold in Indian rupees, the ETF trades on Indian stock exchanges like a stock. Kotak Gold ETF is an open-ended ETF that invests directly in physical gold. The fund claims to keep all its assets in physical gold with Deutsche Bank, and all the gold bars follow LMBA gold standards. The expense ratio of Kotak Gold ETF is 0.55%.
Kotak Gold ETF started with 0.4 tons of physical gold in assets in 2007. The amount of physical gold held by the ETF grew to 4.5 tons in 2012. However, the price of gold has reduced since 2013, and gold holdings of the fund have declined to 1.2 tons in 2018. Like other Indian Gold ETFs, Kotak Gold ETF’s quantity of gold purchases increased, and gold holdings increased to 4.4 tons in 2 years, from 2019 to 2021.
6. UTI Gold Exchange Traded Fund
UTI Gold Exchange Traded Fund is an open-ended ETF that trades in Indian stock exchanges. The fund tracks the performance of gold spot prices. The fund currently holds 1.3 tons of physical gold in its assets. UTI Gold Exchange Traded Fund claims to be a passively managed fund backed by 99.5% purity physical gold. The fund’s expense ratio is higher than most Gold ETFs at 1.13%.
UTI Gold ETF was started in 2007 with 1.3 tons of gold as one of the largest gold ETFs in India at that time. But the fund did not grow significantly afterward. UTI Gold Exchange Traded Fund reached the highest level of holdings at 2.4 tons in 2012. The portfolio holdings of gold have been declining since 2013. With only 1.3 tons of gold in its asset, this is an ETF that is not growing like most of the other gold ETFs globally and in India.
7. Axis Gold ETF
Axis Gold ETF currently holds 1.3 tons of gold in its assets. Aditya Bhagaria manages Axis Gold ETF funds. This is an open-ended gold ETF trade in Indian stock exchanges. The fund directly invests in physical gold and claims to have a very low tracking error of 0.31% with the benchmark of gold spot prices in India. The fund currently holds 98% of its assets in gold.
Started in 2010 with 0.3 tons of gold, the gold holdings of Axis Gold ETF have grown significantly to 1.4 tons in 2012 and have dropped to 0.3 tons in 2018. In the last couple of years, gold holdings of Axis Gold ETF increased to reach 1.3 tons of gold in 2022.
8. Birla Sun Gold ETF
Birla Sun Gold ETF currently holds 0.7 tons of physical gold in its assets. The fund started in 2011 with 0.2 tons of gold, and the fund’s assets increased to 0.7 tons of gold.
9. Quantum gold fund
Quantum Gold Fund currently holds 0.3 tons of physical gold. Quantum Gold Fund ETF is listed on Indian exchanges and traded like a stock, providing an excellent opportunity for investors to get exposure to the gold spot prices in India. The fund has an expense ratio of 0.78%. 90% of the fund’s assets are held in 1 kg gold bars at the Mumbai location.
Quantum Gold Fund started operations in 2008 with 0.1 tons of gold, and the gold holdings have grown to 0.3 tons in 2022. Ghazal Jain of Quantum Advisors manages the fund.
10. IDBI Gold ETF
IDBI Gold ETF currently holds 0.2 tons of gold in its assets. The fund is listed in NSE and BSE, like other ETFs in India.
It started in 2011 with 0.2 tons of gold under its management. The fund sharply increased its holding of gold to 0.6 tons in 2012. The fund’s gold holdings have reached 0.2 tons of gold in assets.
11. Invesco India Gold ETF
Invesco India Gold ETF currently holds 0.2 tons of gold in assets. It started in 2010 with 0.2 tons of gold in assets. Gold investment declined to 0.1 tons in 2019, although the fund increased its holding to 0.2 tons of gold in 2022. The fund is not a significant player in Gold ETFs in India.
The amount of gold held by gold ETFs in India is steadily growing. But the proportion of Indians investing in gold through ETF is significantly low compared with a direct physical gold purchase by Indian individual investors. Investing in Gold ETF is an attractive option for Gold investors in India.
What are the benefits of investing in Gold ETFs?
Gold ETFs provide a convenient, secure, and highly liquid opportunity for investors to participate in the price of gold. Compared to gold jewelry or physically acquiring gold bullions and bars, investing in Gold ETFs has some notable advantages. The following are the benefits of investing in gold through ETFs-
- Assurance of the purity of gold
- Security and storage of the gold
- Low Transaction Cost
- Low Cost of holding
- Transparency in pricing
- High liquidity
- Ease of starting and trading
- Supporting SIP mode of wealth creation
1. Assurance of the purity of gold
The most crucial disadvantage of investing in gold jewelry is the difficulty of ascertaining the quality and purity of the gold. Investing in gold through gold ETF assures the quality of the gold. The quality assurance of the physical gold holdings backed by the Gold ETF becomes the responsibility of the ETF itself. The cost of managing and ensuring the purity of the gold will be transferred to investors in the form of management expenses. The expense ratio of Gold ETFs in India ranges from 0.10% to 1.5%.
2. Security and storage of the gold.
Another major disadvantage of holding physical gold in jewelry or gold coins is the risk of theft. Gold ETFs provide the security to the investment against theft of the asset, which reduces the risk of investing in gold to the price risk associated with fluctuations of gold.
3. Low Transaction Cost
Another significant benefit of owning gold by ETF is the level of the transaction cost. Transaction costs for buying gold jewelry and bars and coins are very high. The cost to buy and sell jewelry sometimes reaches 10 to 15% of the jewelry price. For a return calculation, this level of transaction cost is the highest on any asset. Advisors are recommending against buying gold jewelry as an investment due to high transaction costs. On the other hand, ETFs have low to no transaction costs involved in buying and selling. This makes acquiring gold through ETFs a better economical choice for investors.
4. Low Cost of holding
Gold jewelry and bars are generally stored in bank lockers or with gold dealers. Investors have to pay rentals and other charges for storing their jewelry and coins. For ETFs, the total expense ratio is relatively low at 0.3% to 1.5% of the investment. The low expense ratio makes ETFs a low-cost vehicle for investment in gold.
5. Transparency in pricing
Gold ETFs are priced based on the spot gold prices. Investors in the ETF can always access price information and the value of their investments. Since ETFs trade on exchanges, the prices are constantly updated, and the price of ETF adjusted with gold prices.
6. High liquidity
One of the constraints of owning gold jewelry is the difficulty of selling the jewelry at the time of need. But Gold ETFs are highly liquid and can be traded at the opening hours of stock exchanges. It reduces investors’ liquidity risk and provides additional incentives for investors investing in gold.
7. Ease of starting and trading
Every investor with a demat account can buy and sell gold ETF with minimum documentation and procedures. The ease of participating in the market is another added incentive for investors to participate in Gold markets through ETF.
8. Supporting SIP mode of wealth creation
Fractional ownership of jewelry is not possible, which makes jewelry investment require a higher initial investment. In contrast, gold ETFs are available in small units to equal to 1 gram of gold. It helps to invest in gold with a minimal amount of cash outflow. People can follow a systematic investment plan for acquiring gold through ETF.
Despite all these advantages of ETFs over jewelry or gold bars, Gold ETFs are not popular in India as an investment vehicle. Every investor needs to evaluate personal circumstances before making investment decisions. The disadvantages of investing in gold through ETFs need to be understood before making an investment decision.
HDFC Gold ETF- https://www.hdfcsec.com/productpage/gold-etf
SBI ETF Gold- https://www.sbimf.com/en-us/other-schemes/sbi-etf-gold
Birla Sun Gold ETF- https://groww.in/mutual-funds/birla-sun-life-gold-etf
IDBI Gold Fund- https://www.idbimutual.co.in/fund-snapshot/IDBI-GOLD-FUND/117714
To know more about Worlds Largest Gold ETFs continue reading- Which is the largest Gold ETF and what is the amount of gold invested by Gold ETFs?
8 ways to Invest in Gold – 8 Ways to Invest in Gold
What is the cost of Producing one Ounce of Gold- https://moneygraphit.com/2021/10/23/how-much-does-gold-really-cost/
Please leave a comment on your gold price forecasts.