Indian equity investors are increasingly turning to gold exchange-traded funds (ETFs) as a protective shield against turbulence in the stock markets, driven by global economic uncertainties. This shift in strategy is highlighted by unprecedented investment flows into these precious metal-backed instruments.
Record-Breaking Inflows into Gold Funds
Data released by the Association of Mutual Funds in India (Amfi) reveals a historic surge. Gold ETFs witnessed a record monthly net inflow of ₹11,646.74 crore in December 2024. This staggering figure even surpassed the inflows into flexi-cap funds, which are open-ended equity mutual funds investing across large-, mid-, and small-cap companies. Flexi-cap funds attracted ₹10,019.27 crore in the same month.
This is not an isolated event. Earlier, in September 2024, gold ETFs had already touched a then-record high of ₹8,363 crore in net inflows, signaling a growing and sustained trend among retail and institutional investors.
Why Gold is Shining Brighter Than Equities
The massive pivot towards gold is fueled by its stellar performance compared to traditional equities. Over the past one to five years, returns from the precious metal have outpaced those from the stock market. Experts attribute this to a combination of global tariff tensions, a weakening US dollar, and recent geopolitical flashpoints like the US involvement in Venezuela, all of which enhance gold's appeal as a safe-haven asset.
"Stellar returns generated by precious metals over the past year have attracted investments into gold through asset allocation funds," noted Mahesh Patil of Aditya Birla Sun Life AMC Ltd.
The performance numbers are compelling. For instance, the widely-held Nippon India ETF Gold BeES, priced at ₹113.5 per unit, delivered an impressive 73.52% return over the past year. In stark contrast, the Nifty 50 index returned only 9.38% during the same period. The trend extends to silver as well, with the Nippon India Silver ETF soaring by 162% to ₹228.34 per unit.
A Shift in Investor Sentiment and Future Outlook
The preference for gold is reflected in the broader mutual fund landscape. Total monthly net inflows into equity mutual funds dipped slightly to ₹28,034 crore in December from ₹29,893 crore in November. This underscores a cautious investor mood, redirecting funds towards perceived safety.
However, some experts advise tempered expectations for the future. Veteran commodity investor Jim Rogers, in a December interview, expressed that while he continues to hold his gold and silver, he anticipates returns to moderate by 2026. "I own both gold and silver and am not selling, but I doubt if they will have two years in a row like that," he stated.
The current data paints a clear picture: faced with global headwinds and stock market volatility, Indian investors are actively diversifying their portfolios, placing significant bets on gold ETFs as a reliable hedge for their wealth.
