Is there physical gold backing India's ETFs?
Gold has always been a symbol of wealth and security, but for modern investors, the shine now comes in digital form. Exchange-traded funds (ETFs) tracking gold have gained significant traction in India, offering investors an alternative to physical gold.
Over the past one year, gold has yielded a 37.73% return, while the three-year return stands at 18.72%. Looking at a broader horizon, gold has provided a 14.68% return over five years and 11.12% over ten years.
ETFs allow investors to gain exposure to gold price movements without the burden of storage and security. But a crucial question arises: Is there actual physical gold backing India's gold ETFs?
Yes, India's gold ETFs are backed by actual physical gold, ensuring that the value of the ETF units is directly linked to the gold price.
As per the scheme information document (SID), the fund houses managing these ETFs purchase gold bars that meet the purity standards set by the London Bullion Market Association (LBMA). The amount of gold held is regularly audited, and investors can check periodic reports released by the respective fund houses.
According to Niranjan Avasthi, senior vice president and head of product, marketing, and digital at Edelweiss Mutual Fund, the physical gold backing gold ETFs are stored securely in vaults. He mentioned that most asset management companies (AMCs) and large bullion dealers have their own vaults where they store the physical gold. The gold must meet the LBMA good delivery norms, ensuring it is 99.95% pure, which is the global standard for high-quality gold.
The physical gold backing India's gold ETFs is stored in highly secure vaults managed by custodians in India, according to Securities and Exchange Board of India (Sebi) guidelines.
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