Gold up 105%: 4 best Gold ETFs riding the boom

Gold has had a phenomenal run in the past three years, surging 104.8 per cent (around 27 per cent annualised returns), according to the World Gold Council. The rally has been fuelled by real and persistent global concerns, from escalating geopolitical tensions in the Middle East to trade friction between major economies.

In such uncertain times, gold typically reclaims its safe-haven status. And for Indian investors, it’s once again becoming more than just a hedge; it's emerging as a meaningful asset class to include in a diversified portfolio.

So, if you’re looking to invest in gold today, the choice of vehicle matters just as much as the timing.

1. SGBs

For long-term investors, Sovereign Gold Bonds (SGBs) have been the gold standard.

They offer 2.5 per cent annual interest, zero capital gains tax if held till maturity and are backed by the Government of India. For anyone planning to stay invested for at least eight years, this was often the smartest gold bet.

However, SGBs were the best option. ‘Were’ is the operative word here.

Why? Fresh issues are currently unavailable and most secondary market bonds trade at premiums or suffer from low liquidity. You might not always get the series you want, at the price you want. These issues have put them out of reach for many investors — at least for now.

Which is why it’s time to consider the next best options: Gold ETFs and Gold FoFs (funds that invest in other funds).

2. Gold FoFs

Gold fund of funds (FoFs) are mutual funds that invest in gold ETFs. They are easy to buy and don’t need a demat account. You can set up SIPs, redeem units online and manage them like any other mutual fund.

But convenience comes at a cost. Gold FoFs charge their own expense ratio on top of the ETF’s fee. For example:

• If the ETF charges 0.50 per cent, the FoF might charge an additional 0.1 per cent to 0.65 per cent (as of June 2025).
• Over time, that extra cost chips away at your returns, especially if you’re investing for the long haul.

So, unless you value convenience over cost, you may want to look elsewhere.

3. Gold ETFs

Gold ETFs (exchange-traded funds) are a more cost-effective way to invest in gold.

They mirror domestic gold prices, are regulated by SEBI and can be bought and sold on the stock exchange through your demat account. Most ETFs have expense ratios of just 0.31 per cent to 0.73 per cent, making them the lowest-cost gold option available today (aside from buying physical gold in bulk, which comes with its own storage and purity issues).

You can invest in them in lumpsum, track their NAV daily and even exit them during market hours. Liquidity is generally good for the larger ones, and they’re ideal for those who already invest in equities or mutual funds through a broker.

The importance of tracking error in ETFs

While expense ratio is the most obvious cost metric, tracking error is just as important, especially for ETFs.

Tracking error tells you how closely an ETF mirrors the price of gold. Lower the tracking error, the better the ETF has done its job. Even if the gold price shoots up, an ETF with high tracking error might underperform due to inefficient fund management, timing lags or internal costs.

Now that we know the importance of expense ratio and tracking error, let’s look at the top-performing Gold ETFs in the last one and three years.

Liquidity: The hidden dealbreaker

When it comes to ETFs, including Gold ETFs, most investors focus on things like expense ratio and past returns. But as Value Research has often pointed out, liquidity is just as important, if not more.

A highly liquid ETF means you can buy and sell units easily, without paying more than you should. But when liquidity is low, you might face a wider bid-ask spread. Meaning, you may be forced to sell your investment at a discount.

The bottom line is that even the best ETF can disappoint if it lacks liquidity.

So, before investing in a Gold ETF, always check its average daily volumes.

Sadly, this data isn’t always front-and-centre. It often requires digging through NSE or BSE websites.

But if you don’t want to sift through NSE and BSE data or track liquidity manually, our analysts at Value Research Fund Advisor have already done it for you — having about half-a-dozen Gold ETFs as a ‘Buy’ based on several criteria, including:

• Expense ratio
• Tracking error
• Liquidity
• Long-term performance

Because in a glittering market like gold, it’s not just about buying the metal, it’s about buying it smartly.

Also read: Israel-Iran fear routs stock markets. Time to buy gold now?