Buying gold on auspicious occasions is a part of the Indian tradition. While the yellow metal has cultural and traditional significance, gold also plays an important role in one’s investment portfolio as a diversifier and a hedge against inflation and volatility in other asset classes. The advent of Gold ETFs has given investors a new way to invest in this precious metal.
Before investing, however, everyone wants to know whether buying Gold in the form of jewellery or coin is better or investing in Gold ETF. One way to find an answer to this question is to look at the historic returns of both options. In this article we take a look at the last five-year returns of Gold and Gold ETFs:
There is not much difference in the returns from Gold and Gold ETF. In five years, Gold has given a compounded annual return of 12.2% while Gold ETFs have given a return of 12.4% in the same period.
Also Read: How to select the best Gold ETF
“Over the last 5 years, gold has moved from Rs 30,000 per 10 gms by end of 2017 to reach a high of almost Rs 56,200 by August 2020, before cooling off to Rs 52,000. This has resulted in gold delivering a compounded double-digit return of 12.2%,” says Gopal Kavalireddi, Head of Research at FYERS, an online trading and investment platform.
“Gold ETFs too have delivered similar returns, with an absolute return in the 60-64% range, and a five-year annualized average return of 12.4 per cent,” he adds.
The biggest move for gold was during the peak of the Covid-19 Crisis in 2020 when it rose sharply by 38% in a single year. This was also the biggest Year-on-Year percentage change in Gold price since 2011.
Also Read: How not to be fooled while buying Gold for Dhanteras and Diwali: 5-point guide
Is Gold ETF better than physical Gold for investment?
From a pure investment point of view, experts believe that Gold ETF is better than physical gold for several reasons.
“In the majority of the cases, gold ETF is a better bet than physical gold,” says Abhishek Jadon, smallcase manager and VP at Windmill Capital. According to Jadon, there are at least three key reasons for which Gold ETFs can be considered a better investment than physical gold:
- Ease of buying: Gold ETFs can be bought with a click of a button in your Demat account, which is not the case with physical gold as there is a tedious and time-consuming aspect behind buying.
- Liquidity: Gold ETFs are much more liquid as they can be sold instantly as compared to physical gold which cannot be sold instantly.
- Economical benefits: Physical gold attracts making charges, and storage costs and is tax inefficient as compared to gold ETFs.
“Investors who are considering purchasing gold for investment purposes this Diwali can consider Gold ETFs. Investing in Gold ETF is as good as investing in physical gold. Since Gold ETF is held in Demat, an investor need not worry about storage and safety aspects. Those without a Demat can invest in the Gold Fund of Fund,” said Chintan Haria, Head, Product Development and Strategy, ICICI Prudential AMC.
(The views/suggestions expressed above are those of respective commentators. Returns from investing in Gold, Gold ETF and other mutual funds could be subject to market risks. Please consult your financial advisor before investing.