From HNIs to retail, why were gold ETFs investors’ favourites in 2024? Will their stellar performance continue in 2025? | Stock Market News

Physical gold has always been a household favourite, but 2024 witnessed a significant surge in demand for gold Exchange Traded Funds (ETFs) among investors. The investment in the instrument between November 2023 and November 2024 quadrupled to ₹1,256 crore, says the Association of Mutual Funds in India (AMFI).

The trend was witnessed across different categories of investors, from High-Net-Worth Individuals (HNIs) to retail investors. As we enter 2025, let’s explore the key reasons that fueled gold ETF demand in 2024 and understand its prospects for next year.

What are the leading factors behind Gold ETF’s popularity?

Experts believe that geopolitical uncertainty and stock market volatility have immensely contributed to the popularity of gold ETFs in India in recent years. Additionally, they are a more transparent, tax-efficient, and hassle-free option for investing in the commodity.

“We are in a period of global economic uncertainty. With geopolitical tensions and potential rate hikes looming, investors seek safe-haven assets. Gold has historically proven its worth as a reliable hedge against such risks,” said Mayank Misra, VP Product Management, Mutual Funds, INDmoney.

He added that rising cost of living, inflation and stock market volatility have encouraged investors to invest more in gold.

While there are different ways to invest in yellow metal, such as fold mutual funds and digital gold, Mayank Jha, Managing Director and Partner at BCG, believes these instruments lack the flexibility and tax benefits of gold ETFs.

“Gold ETFs now qualify for long-term capital gains (LTCG) after just 12 months. Investors—especially corporates and HNIs—are increasingly drawn to the liquidity and tax efficiency of ETFs,” said Jha.

Discontinuation of Sovereign Gold Bond Scheme

The Sovereign Gold Bond (SGB) programme, launched by the government in 2015, lets people invest in debt securities issued by the Reserve Bank of India (RBI) on behalf of the government. A single SGB unit denotes a single gram of gold. SGB schemes allow investors to trade in the secondary market, and the interest rate in these schemes is fixed at 2.5 per cent per annum.

However, according to reports, the scheme will be discontinued next year.

“In 2024, only one SGB was issued by the Government compared to 4 issued in 2023. With SGBs offering assured interest and tax benefits on maturity, they were a preferred gold investment. This has created a massive demand-supply gap and has shifted investor interest towards Gold ETFs,” said Mayank Bhatnagar, co-founder and COO, FinEdge.

According to Mayank Misra, SGB schemes were government-backed investment options, and their potential absence might redirect investors to alternative gold investment avenues.

“However, it’s important to note that the impact of SGB discontinuation on gold ETF inflows could vary. Several factors, such as global economic conditions, domestic inflationary pressures, and investor sentiment, will continue to play a significant role in shaping investors’ decisions,” said Misra.

HNI and retail investors’ interest

“Gold ETFs have witnessed a sharp rise in popularity throughout 2024, with assets under management (AUM) growing 64 per cent year-on-year, driven significantly by the last five months. High Net-Worth Individuals (HNIs) have been instrumental in this surge, increasing their AUM share from 18% to 21%,” said Mayank Jha.

Highlighting retail investors’ participation in investment, Jha noted, “Retail investor participation grew at an impressive 76%, although it is still small at 6% share of AUM.”

Will gold ETF remain popular in 2025?

With the looming risk of global uncertainties, inflation, and economic slowdowns, IndMoney’s Misra believes that the popularity of gold ETFs is likely to increase in 2025.

Echoing the same sentiment, Bhatnagar said, “The upward trend is expected to persist in 2025, supported by continued equity market volatility, global geopolitical uncertainty, and rising gold prices. However, a plateau or decline in gold prices could temper this momentum.”

While the data indicates a favourable trend for gold ETFs in 2025, Bhatnagar warns that past returns do not guarantee future performance.

Explaining the cyclical nature of asset class performance, Bhatnagar said, “Equities delivered impressive returns in previous years, but they lagged in 2024, with the NIFTY index gaining 11%, falling short of the gains in Gold. In contrast, 2023 saw equities leading the pack, with the NIFTY posting a 20% return compared to Gold’s 7.3%, highlighting the unpredictable nature of asset class performance.”

He added, “Basing investment decisions solely on past performance can work adversely for your financial goals. Asset allocation is an important component of investment planning, and that is why it is essential to follow an investing process that focuses on financial goals, risk tolerance, investing expectations and time horizon.”