Axis Gold ETF: A cost efficient way of investing in Gold

Gold is considered to be an auspicious investment in many Indian households. Many families purchased Gold in this festive season with many jewellers reporting strong sales after the COVID gloom. The wedding season is now approaching and families will be gifting Gold to newly-wed couples. Apart from auspicious and cultural reasons for buying Gold, it is also an important asset class from an investment standpoint.

Benefits of investing in Gold

• Gold is often seen to be counter-cyclical to equity i.e. gold outperforms when equity underperforms and vice versa (see the chart below). Hence, Gold can be used for asset allocation to diversify your portfolio risks.
  
  

  Source: National Stock Exchange, World Gold Council (Gold prices in INR), Advisorkhoj Research, as on 29^th October 2021. Equity as an asset class is represented by Nifty 50 TRI; Gold as an asset class is represented by the domestic (Mumbai) gold price in INR. Disclaimer: Past performance may or may not be sustained in the future



• Gold as an asset class can be a hedge against inflation in the long term. The chart below shows the growth of Rs 10,000 investment in Gold over the last 20 years (ending 29^th October 2021). Over the last 20 years Gold gave 12% CAGR returns. You can see that over long investment horizons, Gold serves as a hedge against inflation.
  
  

  Source: World Gold Council (Gold prices in INR), Advisorkhoj Research, as on 29^th October 2021. Disclaimer: Past performance may or may not be sustained in the future



• Gold provides stability to your portfolio. Though Gold can underperform for long periods of time, which is why you need to have long investment horizons, Gold is much less volatile than equity. Maximum Gold drawdown in a year over the last 10 years was 19%, whereas equity saw far deeper drawdowns on over shorter periods of time.


• Most Indian families make substantial investments in Gold during children’s weddings. Since Gold appreciates over long investment tenures, as historical data shows, it makes economic sense to invest in Gold over long investment tenures.

Benefits of investing in Gold ETFs

Though physical gold, especially in the form jewellery is the traditional way of buying Gold, investment experts recommend Gold as a financial asset for investment purposes. There are a number of benefits of investing in Gold as a financial asset rather than physical asset:-

• Gold in the form of jewellery has impurities, which will get deducted from the value of Gold if you are selling or remaking your gold jewellery.


• Gold jewellery cost includes making charges. Fashion changes over time and you may have to remake the jewellery again, if you plan to gift to your children or their spouses in the future. If you are buying Gold for the purpose of your child’s marriage, it is better to buy it as a financial asset, so that you can avoid the double making charges and impurities.


• Gold in physical form involves storage charges i.e. bank locker charges. Gold in financial form does not require separate storage costs.

You can invest in Gold in the financial form by investing in Gold ETFs or Gold Fund of Funds. Axis Gold ETF and Axis Gold Funds are low cost options for investing in Gold as an asset class.

About Axis Gold ETF

Axis Gold ETF is an exchange traded fund which tracks the domestic price of pure 24 carat Gold. It was launched in November 2010 and has Rs 537 crores of assets under management (as on 31^st October 2021). The expense ratio of the fund is just 0.53%. The chart below shows the performance of Axis Gold ETF over different time-scales (as on 17^th November 2021). Tracking error is low over 3 year investment horizons.

Source: Advisorkhoj Research

About Axis Gold Fund

You need to have demat and trading accounts to invest in Axis Gold ETF. If you do not have demat and trading account, you can invest in Axis Gold Fund, which is a fund of funds investing in Gold ETF. The fund was launched in November 2011 and has Rs 255 crores of assets under management (as on 31^st October 2021). The expense ratio of the fund is just 0.61%. The chart below shows the performance of Axis Gold Fund (Regular Plan Growth) over different time-scales (as on 17^th November 2021).

Source: Advisorkhoj Research (Returns are for Regular Plan Growth option)

Why invest in Axis Gold ETF / Gold Fund?

• There is persistent high global inflation. Global commodity prices especially crude oil continues to be strong with an upward bias. Gold has a strong correlation with inflation. Gold has been outperforming for the last 2 months, rising 6% in just 2 months.


• The upcoming wedding season in India will put further upward pressure on domestic Gold prices. INR depreciation will cause Gold prices to go up further.


• Equity valuations seem to be stretched, with the Nifty-50 trading at significantly higher valuations relative to its historical average. Valuations in the broader market (midcaps and small caps) also look stretched at current levels. Given current frothy conditions in the equity market, investors can increase their asset allocation in Gold. Gold had historically performed well when equity valuations were high.


• Axis Gold ETF is cost efficient way of investing in Gold. If you do not have demat / trading accounts, you can invest in Axis Gold Fund.


• You can also invest in Axis Gold Fund from your regular savings through SIP for your long term financial goals like children’s marriage, estate planning etc. However, you cannot do a SIP in AXIS Gold ETF.

Investors should consult with their financial advisors if Axis Gold ETF or Axis Gold Fund are suitable for their investment needs.