Bullion ETFs are now becoming one of the most preferred investment options in broker funding books. With rising market volatility and global economic uncertainty, many investors are turning towards gold-backed exchange-traded funds (ETFs) as a safer option.

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In recent months, broker reports show that Bullion ETFs are seeing strong inflows. Investors are choosing these funds because they offer exposure to gold without the need to buy physical gold.

Bullion ETFs Top Picks in Broker Funding Books

Gold and silver exchange-traded funds (ETFs) are now among the top five picks financed by brokers under the margin trade funding (MTF) facility on the National Stock Exchange (NSE). The trend reflects investors’ growing appetite for portfolio diversification amid rangebound markets and external headwinds.

While the popular SilverBees, or Nippon India Silver ETF, held the top spot on brokers’ MTF books as recently as 1 February, Nippon India’s gold ETF, GoldBees, which ranked seventh as of that date, surpassed silver to move to the third slot, with the latter at the fifth place as of 9 February, according to NSE data.

GoldBees was third only to Hindustan Aeronautics Ltd (HAL) and Jio Financial Services, which were the top two MTF picks. Broker funding for GoldBees was at ₹1,246 crore, while that of SilverBees was ₹1,201 crore as of 9 February. HAL, at ₹1,620 crore, was the top MTF pick, followed by Jio Financial Services at ₹1,303 crore. ITC ranked fourth, with funding of ₹1,213 crore.

MTF allows investors to pay only a portion of the value of a stock or an ETF, with the broker financing the remaining amount.

While margins keep changing based on the volatility of the underlying stock or precious metal. That the margins for gold and silver that a client must pay are currently in the range of 30-40%, depending on the broker. This means an investor typically needs to put in around 30-40% of the amount, depending on the product’s volatility, implying leverage of around two-and-a-half to three times. Simply put, to buy ₹1 crore worth of a gold ETF, an investor would need to invest ₹30 lakh, while the broker would finance the remaining amount in exchange for interest of around 9-18% per annum.

Personal finance expert Amol Joshi, founder of PlanRupee Investment Services, said that the idea behind diversification was to derive risk-adjusted returns. He recommends an allocation of 10-15% to precious metals, of which gold should comprise two-thirds and silver the rest.

“Investors have increased allocation to precious metals from a historical 5% to 10-15% of their financial portfolios over the past year or so because of the phenomenal returns generated by precious metals relative to equities. We expect gold to outperform silver over the long term,”.

GoldBees, for instance, generated absolute returns of 79% over the past one year to ₹128.7 a unit as on 11 February. Against this, Nifty 50 has risen 12.5% to 25,953.85 points over the same period. The absolute return from SilverBees is a whopping 171% at ₹247.37 a unit over the same period, but it has scarred investors recently as the metal tends to be more volatile than gold.

For instance, as of 11 February, it was down 31% from its record high of ₹360 on 29 January. GoldBees was down 13% from its record high of ₹148.14 over the same period. Both the metals have cooled off from their highs on abating tensions between Iran and the US and a stronger dollar.

There were 25 gold ETFs and 17 silver ETFs in India as of January end, according to the Association of Mutual Funds in India.

Investor interest in margin trade funding for bullion coincides with mutual fund investors’ record ₹33,503 crore of net inflows into gold and silver ETFs in January, surpassing equity MF inflows of ₹24,028.59 crore during the month. Of this, gold ETFs accounted for ₹24,039.96 crore, with silver making up the remainder.

Why Are Bullion ETFs Gaining Popularity?

There are several reasons behind the growing interest in Bullion ETFs:

1️⃣ Safe Haven Demand

Gold has always been considered a safe haven asset. When stock markets become unstable or inflation rises, investors prefer gold to protect their capital.

2️⃣ Easy to Buy and Sell

Gold ETFs are traded on stock exchanges just like shares. This makes buying and selling very simple compared to physical gold.

3️⃣ No Storage Hassle

There is no need to worry about storing gold or paying making charges. ETFs eliminate these issues.

4️⃣ Transparency and Liquidity

Bullion ETFs offer transparent pricing and high liquidity, making them attractive for short-term as well as long-term investors.

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Disclaimer

This article is intended for educational purposes only. The views and opinions expressed are those of individual analysts or brokerage firms and do not represent the views of GoldSilverReports.com. Investors are strongly advised to consult certified financial experts before making any investment or trading decisions.

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