Planning To Buy Gold This Diwali? Why Gold ETFs Are Catching Investors' Attention

This Diwali could be an opportunity for investors looking to add gold to their portfolios. Gold prices have corrected nearly 12% over the past six months, prompting investors to explore opportunities in the precious metal. Gold exchange-traded funds (ETFs) attracted estimated net investments of around Rs 3,300 crore in October, indicating growing investor interest amid the price consolidation.

The consolidation in gold prices appears to have encouraged investors to increase their exposure through gold ETFs. Data shows that the total assets under management (AUM) of gold ETFs have increased month-on-month, rising from Rs 1,58,400 crore in April this year to Rs 1,91,000 crore in October.

Gold ETFs are open-ended mutual fund schemes listed on stock

exchanges that track domestic gold prices. Each unit represents a specified quantity of gold, depending on the scheme, and is backed by physical gold of prescribed purity. Investing in gold ETFs offers several advantages over purchasing physical gold, including convenience, transparency and relatively lower costs.

In its latest quarterly outlook, the World Gold Council said the ongoing festive and wedding seasons could support gold demand. Central banks are also expected to continue adding to their gold reserves at historically elevated levels. These factors could support gold prices, although movements in interest rates, bond yields and the US dollar may influence the outlook.

Gold ETFs Deliver Strong Returns

Gold ETFs have delivered strong returns over the past year. Nippon India Gold ETF BeES topped the list with returns of 12.58%, while Invesco Gold ETF and ICICI Prudential Gold ETF recorded returns of 12.50% and 12.39%, respectively, over the one-year period.

Since the last Diwali, celebrated on October 20, 2025, gold ETFs have delivered an average return of 9.22%. There were 22 gold ETFs during the period.

According to Value Research data, the gold ETFs/funds category delivered returns of 6.94% year-to-date, 18.64% over one year, 31.90% over three years and 23.15% over five years, as of October 26, 2026.

Gold ETFs Vs Physical Gold: What Are The Advantages?

While buying gold jewellery and coins remains a cultural staple in India, gold ETFs offer several practical and financial advantages over physical gold.

Buying physical gold jewellery involves making charges, which can significantly increase the overall purchase cost. These charges vary depending on the jeweller and the design. Gold ETFs, on the other hand, do not involve jewellery-making charges.

There are also concerns around the safety and storage of physical gold. Investors holding gold jewellery or coins may have to bear bank locker charges and face the risk of theft. Gold ETFs eliminate these concerns as the units are held electronically in a demat account.

Selling physical gold can also involve deductions, testing charges and differences in the price offered by jewellers. Gold ETFs, meanwhile, can be bought and sold on the NSE and BSE during market hours, with prices reflecting movements in domestic gold prices. This provides investors with greater transparency and liquidity.

Another advantage is affordability. Buying physical gold often requires a relatively substantial upfront investment, particularly when purchasing jewellery or coins. Gold ETFs allow investors to purchase units in smaller quantities, making it easier to gain exposure to gold without having to buy an entire coin or jewellery item.

However, investors should also account for expenses such as fund management charges, brokerage and other applicable transaction costs while investing in gold ETFs.

Pankaj Mathpal, founder and CEO of Optima Money, said the outlook for gold remains positive, supported by strong investment demand and expectations of a modest decline in overall supply. However, higher interest rates, bond yields and a stronger US dollar could create some volatility in gold prices.

“From an investor’s perspective, this is not the time to chase gold prices or make large lump-sum investments. Investors may consider accumulating gold in small quantities through Gold ETFs, keeping in mind their existing portfolio allocation, exposure to gold and long-term financial goals. Gold should primarily serve as a portfolio diversifier and hedge against uncertainty rather than an instrument for short-term speculation,” Mathpal said.

On Wednesday, gold ETFs were trading higher by as much as 3.25 per cent, while silver was up by 5.5 per cent.