Gold vs equity funds: The future looks bright for gold as it continues to shine in the market. Recent trading sessions have seen the precious metal reach record highs, with significant gains in 2023 and 2024 – 13% and 27% respectively. In 2025, gold has maintained its momentum with a year-to-date return of almost 10%.
Global uncertainties, such as the Middle East crisis, tariff threats from Donald Trump, and a slowing global economy, have led investors to shift from equity funds to gold or gold ETFs as a safe haven investment.
Data from the Association of Mutual Funds in India (AMFI) shows a substantial increase in net inflows into gold Exchange-Traded Funds (ETFs) in January 2025. In just one month, net inflows surged to Rs 3,751.4 crore from a low of Rs 640.16 crore in December 2024, a growth of 486%. This represents the highest monthly net inflow ever recorded for Gold ETFs.
However, not all experts feel gold has always given positive returns in the past. In the last three months, November 24, December 24 and January 25, the return of gold is -3.20%, -0.38% and 7.23%, respectively. Returns and inflows are directly correlated which shows the tendency of people buying past performance and supports the logic of recency bias. In a recent social media post, B Padmanaban, a Certified Financial Planner specialising in Mid & Small cap investments, noted that some investors have expressed dissatisfaction over their SIP investment performance turning negative in the past year, while Gold has yielded a nearly 40% return.
He said investors feel gold appears to be the only asset class showing consistent growth, contrasting with the perceived riskiness of equities, which may offer lower returns compared to Gold amid the current surge in gold prices.
He said it is essential for investors to maintain a long-term perspective, as short-term fluctuations can often lead them to overlook historical trends and focus solely on current market conditions.
"All About GOLD. History is Very Important!!! There have been a lot of investors complaining that their SIP investment has gone negative over the past 1 year, while GOLD has returned nearly 40%. GOLD is the only asset class that continues to expand, whereas equities is always RISKY and will only give a lower return than GOLD, based on the present GOLD surge. Many investors may lack long-term vision, often forgetting past events and focusing solely on the present," Padmanaban said in his post.
Taking past reference, Padmanaban said: "It would take someone who started investing in GOLD ETF on August 7, 2020, to September 16, 2022, which is 26 months more than two years. If you look at their SIP results, all of them were negative. If I just tell everyone, they'll think I'm crazy. Whatever my views are always baked by data, not just my opinion! If the same person kept going for another 2.5 years, the XIRR today would be almost 18%. That's the power of compounding!"
Gold vs Gold ETFs vs Equity Funds
In 2005, the Sensex stood at 8,000 while Gold was priced at approximately Rs 7,000 per 10 grams. Fast forward to 2025, and both gold and the Sensex (as of September 29, 2024) have surpassed Rs 85,000. Despite the slight delay in reaching these milestones, taking a long-term investment perspective helps to smooth out such discrepancies. By utilising the Compound Annual Growth Rate (CAGR) formula, it is evident that both assets have yielded annual returns of 12% to 13% over the past two decades.
In the past three months, the gold market saw returns of -3.20% on November 24, -0.38% on December 24, and 7.23% on January 25. These returns demonstrate a direct correlation between returns and inflows, indicating a tendency for individuals to invest based on past performance.
For gold ETFs, net inflows in January 2025 saw a significant increase, reaching Rs 3,751.4 crore. This marks a notable growth of 486% from the previous month's nine-month low of Rs 640.16 crore in December 2024. This surge represents the highest ever monthly net cash inflow recorded in Gold ETFs. Furthermore, the net assets under management of Gold ETFs experienced a 16.24% increase in January, rising to Rs 51,839.39 crore from Rs 44,595.60 crore in December.
Should you invest in Gold ETFs?
Shweta Rajani, Head - Mutual Funds, Anand Rathi Wealth Limited, opined that gold has not always surpassed equity. Therefore, it won't be right to say that gold is a better option than equity funds.
"Gold’s returns have fluctuated widely over a 5-year period, with a low of just 1.73%, highlighting its volatility. Considering recent market fluctuations and the rise in demand, gold’s prices remain unpredictable. This unpredictability makes it a less dependable asset class for investment compared to Nifty, which has shown stable and consistent returns over the last 25 years. Given this volatility, over reliance on Gold could lead to portfolio instability. Hence, it is advisable to limit gold exposure to a maximum of 5-10% of the overall portfolio to maintain diversification while mitigating risk," Rajani said.
The decision of whether gold or stocks are a superior investment option is contingent upon prevailing market conditions, risk tolerance, and investment objectives. Maintaining a balanced portfolio with adequate exposure to gold, in conjunction with equities and bonds, can help ensure stability and mitigate concentration risk.