Gold mutual funds and ETFs have delivered strong returns in the first five months of 2025. UTI Gold ETF led with a 29.75% gain, followed closely by SBI Gold ETF at 29.37%, and Zerodha Gold ETF at 29.28%. Other funds like Invesco India Gold ETF FoF and Groww Gold ETF FoF posted returns of 28.34% and 28.14%, respectively.
Experts attribute this rally to global economic and geopolitical tensions, including conflicts in the Middle East and rising trade tariffs. These factors have boosted demand for gold as a safe-haven asset.
Central banks, especially in countries like China and India, have been increasing their gold reserves significantly. India’s gold purchases jumped to 72.6 tonnes in 2024, a 347% rise from 2023, reflecting a strategic move to diversify away from the US dollar amid global uncertainties.
However, caution is advised for new investors. Shruti Jain, Chief Strategy Officer at Arihant Capital Markets, notes that much of the price rally may already be priced in, suggesting investors wait for a price dip before adding to gold holdings. Quant Mutual Fund also warns of a possible short-term correction of 12-15% in gold prices over the next two months.
Long-term prospects for gold are mixed. Shweta Rajani, Head of Mutual Funds at Anand Rathi Wealth, explains that gold’s ability to deliver high returns declines over time.
The probability of earning over 12% CAGR from gold is very low over 10 to 15 years. She recommends limiting gold exposure to 5-10% of a portfolio, treating it more as a defensive asset like debt. In contrast, equity indices like Nifty offer stronger potential for long-term wealth creation.
Gold ETFs, which track physical gold prices, provide a convenient way to invest without holding the metal physically. Each unit typically represents one gram of gold and can be traded on stock exchanges through a demat and trading account.
In summary, while gold mutual funds have performed well recently, investors should consider gold primarily as a portfolio diversifier and hedge against inflation and market volatility. Fresh investments should be made cautiously, ideally after a price correction, and gold exposure should be kept moderate within a balanced investment portfolio.
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