Top Indian Gold ETFs to Invest in for 2022 | Motilal Oswal

Indian Gold ETFs to Invest

The stock market has traditionally been considered to be high risk. However, there are a few asset classes listed on the stock market with relatively lower levels of risk. One such asset class is the Gold ETF. As a matter of fact, Gold ETFs are widely regarded as some of the best mutual funds to invest in for the long term. It is far safer than stocks and has low levels of volatility too. 

If you’re someone who might be interested in investing in Gold ETFs, here’s everything you need to know about this asset. In addition to giving you more information about this mutual fund, this article also contains some of the best Gold ETFs that you can invest in India right now. Let’s begin.

What is a Gold ETF? 

Before we get to the point where we see what a Gold ETF is, let’s first try to understand what an ETF is. ETF is an acronym for Exchange Traded Fund and is basically a mutual fund that is listed and traded on an exchange like stocks. 

Now, coming back to Gold ETFs, they are essentially mutual funds that invest in physical gold bullion. They’re passive mutual funds, which means that there’s very little intervention from a fund manager. 

Since a Gold ETF is designed to track the price of physical gold, each unit of the ETF is designed to represent 1 gram of physical gold of the highest purity (99.5%). So when you purchase a unit of Gold ETF, you’re essentially purchasing an electronic equivalent of one gram of physical gold. And when you redeem your ETF units, you don’t receive physical gold, but rather the cash equivalent of it. 

By investing in Gold ETFs, you can basically take part in the wealth creation process of gold without going through the hassle of purchasing and storing physical gold. Since everything is done electronically, to invest in Gold ETF, you would need to open a demat account with a stock broker. The units of the ETF that you purchase will be safely stored in the demat account and can be accessed by you at any point in time from anywhere in the world. 

What are some of the advantages of Gold ETFs? 

Now that you’ve seen what Gold ETFs are, let’s take a look at some of the key advantages that this asset class comes with. 

They are based on the price of physical gold

The price of a unit of a Gold ETF is based on the price of 99.5% pure physical gold. This ensures that the prices are transparent, real-time, and free from manipulation. 

They can be bought and sold instantly

Since Gold ETFs are listed on exchanges like the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), you can purchase and sell them quickly at any point in time. 

They comes with several tax benefits 

Compared to physical gold, Gold ETFs come with a host of tax benefits. For instance, they are free from taxes like Securities Transaction Tax (STT), wealth tax, and GST. 

They offer maximum safety and security 

Since you hold Gold ETFs electronically in your demat account, there’s absolutely no risk of theft or misplacement, which is most often the case with physical gold. Also, you won’t have to go through the hassle of storing them safely in safe deposit lockers. 

They can be used as collateral for a loan 

If you’re in need of some emergency funds, Gold ETFs can be pledged with a financial institution as a collateral to avail a loan. Since Gold ETFs are based on the price of physical gold, you can get a loan of around 80% or maybe even more of the total value of investment. 

They come with very low expenses 

Unlike other online mutual funds where a host of different expenses are levied, Gold ETFs come with very low costs. There are absolutely no entry or exit loads and since they’re passively managed funds, the management fees also tend to be very low. 

Who should invest in a Gold ETF?

Gold ETFs are the perfect investment option for conservative investors who don’t like taking on too much risk. Since the price of gold tends to be very stable even during market downturns, the amount of risk associated with ETFs that invest in gold also tends to be very low. 

That’s not all. Individuals who wish to tap into the wealth creation potential of gold, but without having to deal with all the hassles that come with physical gold can invest in Gold ETFs. 

Compared to physical gold jewellery, ETFs are so much better since you can purchase as little as just a unit, which is equivalent to one gram of gold. Also, with ETFs you don’t have to pay any premiums or making charges, which is usually the case with physical gold. 

Best Gold ETFs in India 2022

You’ve seen what Gold ETFs are, their advantages, and who should invest in them. Now, it is time to take a look at some of the best mutual funds to invest in India that track the price of gold. Almost all the major mutual fund houses like HDFC, SBI, Nippon India, and Aditya Birla, among others also have a gold ETF. Here’s some information regarding a few of the best Gold ETFs in India right now.

  1. HDFC Gold ETF

This Gold ETF from HDFC was first started in the year 2010. It is open-ended and invests in both gold and gold-related instruments like Sovereign Gold Bonds (SGBs) and derivatives. 

Key details:

The fund’s total Assets Under Management (AUM) value is about Rs. 3,157.97 crores as on August 31, 2022. The NAV of the fund is quite low and affordable at just Rs. 44.73 as on September 13, 2022. Although there are no entry and exit loads for this ETF, there’s an expense load. The total expense ratio of the fund is currently at 0.59%.

Returns: 

Over the past one year, the fund has managed to generate a return of about 7.2%. However, the three-year return comes up to around 8.3%, making the ETF a great choice for individuals looking for a long-term investment. 

  1. Quantum Gold ETF

Launched in the year 2008, the Quantum Gold ETF is an open-ended mutual fund that invests in physical gold of 99.5% purity. This ETF is one of the few online mutual funds to have each of its units represent 1/100th of a gram of gold. 

Key details:

The Assets Under Management (AUM) value of the fund as on July 31, 2022 stands at Rs. 144.12 crores. The NAV of the ETF as on September 13, 2022 is Rs. 43.295. The expense ratio charged by the Asset Management Company (AMC) for the ETF is around 0.78%. 

Returns: 

Quantum Gold ETF has managed to provide a consistent return year-on-year. Its one year return comes up to around 7.94%, while its three-year return also is around 7.94%. This makes the fund the perfect choice for individuals wanting stable returns from their investments. 

  1. IDBI Gold ETF

Managed by IDBI Asset Management Limited, the IDBI Gold ETF was launched in the year 2011. The fund primarily invests in physical gold, with 99.2% of its total holdings being in gold. Each unit of the ETF represents one gram of physical gold with the highest level of purity. 

Key details:

As on September 12, 2022, the fund’s Assets Under Management (AUM) stands at Rs. 87.82 crores, whereas the NAV of the ETF is around Rs. 4677.59. The fund has one of the lowest expense ratios among the best mutual funds to invest in India, which is currently at just 0.35%.

Returns: 

The return generated by IDBI Gold ETF is on-par with the other Gold ETFs in the market. Its one-year return stands at 7.6%, whereas its 3-year return is slightly higher at around 8.5%. 

  1. Kotak Gold ETF

Launched in 2007, this ETF from Kotak Mutual Fund is another open-ended mutual fund that invests only physical gold. Each unit of the fund is designed to represent 1/115th of one gram of physical gold of the maximum purity. 

Key details:

With a total AUM of around Rs. 2,404.04 crores as of August 30, 2022, the Kotak Gold ETF is one of the largest ETFs in India that invest in gold. The NAV of the fund as on September 13, 2022 stands at Rs. 43.65. The expense ratio of the ETF is quite low at just 0.55%. 

Returns: 

The returns provided by the Kotak Gold ETF is on par with the average. Over the past one year, the fund has managed to generate a return of about 7.21%. However, during the previous three-year period, the rate of return was much higher at about 8.47%. 

  1. SBI Gold ETF

Launched in the year 2009, the SBI Gold ETF is managed by SBI Funds Management Limited. Until January 07, 2022, each unit of this ETF represented 1 gram of physical gold. However, it was changed to represent 1/100th of a gram of gold with effect from January 11, 2022. 

Key details:

The total Assets Under Management (AUM) of the SBI Gold ETF fund as on August 31, 2022 is Rs. 2,641.57 crores. Due to the conversion of the ETF’s unit to 1/100th of a gram of gold, the NAV as on September 12, 2022 is Rs. 45.04. The expense ratio of the fund is slightly on the higher side at 0.64%. 

Returns: 

With a one-year return of around 7.2%, the SBI Gold ETF is very much on track with the other online mutual funds in this list. However, the ETF’s three-year return of around 8.5% is amongst the highest. 

  1. Axis Gold ETF

The Axis Gold ETF was first launched on November 10, 2010. The fund has invested around 97.88% of its total assets in physical gold, with around 2.12% of the assets going towards debt, cash, and other assets. 

Key details:

This Gold ETF fund from Axis Mutual Fund has a total AUM value of about Rs. 702.53 crores. The NAV of the fund as on September 12, 2022 is Rs. 43.86, making it very affordable. The ETF has an expense ratio of around 0.53%, which is just about average. 

Returns: 

The one-year return on investment from the Axis Gold MF stands at 7.4%. However, staying invested for a longer period of time in this fund tends to be more beneficial seeing as the three-year return is around 8.5%. 

  1. Aditya Birla Sun Life Gold ETF

Launched by Aditya Birla Sun Life AMC Ltd in the year 2011, this Gold ETF is an open-ended fund. The ETF has invested around 98.16% of its total assets in physical gold of 99.5% purity. The remaining 1.79% and 0.05% of the fund’s assets are held as net current assets. 

Key details:

As of September 12, 2022, the Aditya Birla Sun Life Gold ETF’s NAV stands at Rs. 46.20, with the total Assets Under Management (AUM) being around Rs. 343.98 crores. The annual expense ratio charged by the AMC is 0.54%. 

Returns: 

The returns provided by Aditya Birla Sun Life Gold ETF is slightly above average. In the past one year, the fund has managed to generate a return of about 7.3%. And in the last three years, the return on investment generated comes up to around 8.6%. 

  1. Invesco India Gold ETF

Launched on March 12, 2010 by Invesco Asset Management (India) Private Ltd, this Gold ETF invests around 98.4% of its total assets in physical gold. The remaining 1.64% of the assets are held by it as cash and cash equivalents. 

Key details:

As of September 12, 2022, the total AUM of the fund is around Rs. 87.06 crores, which is low when compared to other similar ETFs. Since each unit of the ETF represents one gram of physical gold, the NAV is Rs. 4,559.32 as on the same date. The expense ratio of the fund is 0.55% and is charged on an annual basis. 

Returns: 

The returns generated by Invesco India Gold ETF over the past one year is 7.3%. And in the case of the previous three years, the returns provided by the fund increased to around 8.6%. 

  1. UTI Gold ETF

An open-ended mutual fund scheme managed by UTI Mutual Fund, the UTI Gold ETF was launched in the year 2007. This is one of the few ETFs with over 99.95% of its assets invested in physical gold. 

Key details:

The total Assets Under Management (AUM) of the fund at the end of August 31, 2022 was at Rs. 693.83 crores. The NAV of the ETF as on September 12, 2022 stood at Rs. 43.75. Out of all the other best mutual funds to invest in India, the UTI Gold ETF has the highest expense ratio of 1.13%. 

Returns: 

The returns generated by UTI Gold ETF have been very consistent over the past few years. Both the one-year returns and the three-year returns of the fund are very similar to one another at 7.62% and 7.67% respectively. 

  1. Nippon India Gold ETF

This Gold ETF by Nippon India was launched on March 08, 2007. Around 98.557% of its total assets invested in physical gold, whereas the remaining 1.443% are held by the fund as cash and cash equivalents. 

Key details:

Of all the best mutual funds to invest in for the long-term, the Nippon India Gold ETF has the highest AUM under its belt at Rs. 6,532.62 crores as on August 31, 2022. The NAV of the fund, however, is among the lowest at just Rs. 43.72. The expense ratio of the fund is on the higher side at 0.83%. 

Returns: 

Over the last one-year period, the fund has only managed to generate a return on investment of 5.61%. However, the rate of return gets better when compared with the previous three years, which is around 7.72%. 

Things you should know when investing in Gold ETFs

Okay so, now that you’ve gotten a good overview of some of the best mutual funds to invest in India, let’s take a look at a few things that you should keep in mind when investing in Gold ETFs. 

  1. Don’t give too much importance to the expense ratio

While the expense ratio is a crucial metric, it is advisable to not look too much into it when investing in a Gold ETF. Choosing a fund solely because it has the lowest expense ratio can lead to an investment decision that's less than ideal. And considering the returns from a Gold ETF, even a high expense ratio of about 1% or more wouldn’t make much of a difference. 

  1. Don’t go by past performance 

The past performance of an ETF essentially acts as an indicator of its return generating potential. However, remember to not go purely by the returns it generated in the previous years. Although the gold market is not as volatile as the stock market, it still carries a little risk. So, despite producing stellar returns in the previous years, a Gold ETF may still struggle in the future especially if the market is experiencing a downturn. 

  1. Keep an eye on the price trends of gold 

Before you invest in a Gold ETF, it is very important to thoroughly investigate the recent price trends. This will help you gain a better understanding of how the prices of gold move and can help you make good investment decisions. Just like with stocks, you should look to invest in gold when it is at a low and look to sell them as the price goes up. Analysing the price trends of the precious can help give you some much-needed information on the entry and exit points. 

  1. All Gold ETFs are regulated

With Gold ETFs, you don’t have to worry about your investment amount being misused at all. The Securities and Exchange Board of India (SEBI) heavily regulates the ETF market to ensure that there are no loopholes. Also, each unit of ETF that you buy is supported by actual physical gold of 99.5% purity. The physical gold is held securely by a custodian bank appointed by the fund house. 

  1. Check the brokerage 

Depending on the stock broker that you have a relationship with, the brokerage for ETF transactions can be anywhere from 0.5% to 1%. So, before you go ahead with the purchase of Gold ETF units, remember to check the brokerage being charged on them. Ideally, the lower the brokerage, the better since it can help you save a lot of money. This is especially true if you’re someone who frequently trades in Gold ETFs. 

Conclusion

Now, this should have given you a good idea of the best mutual funds to invest in for the long-term that track the price of gold. Before you go ahead and invest in a Gold ETF, make sure to read the fund-related documents thoroughly. This will give you a good idea about the fund and its objectives. Also, remember to go over the list of fund charges applicable and the past performance of the fund. 

Since a demat account is mandatory to invest in mutual funds online, you might want to open one if you don’t have it already. If you’re looking for a quick and easy way to open a demat account, simply visit the website of Motilal Oswal. The application process takes just a few minutes and can be done online through an entirely paperless mode. 

 

 

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