The surge in asset size of gold funds has come at a time when the government is contemplating steps to encourage large flow of household savings into equity, mutual funds and other financial instruments, rather than to idle assets like gold.
According to data compiled by mutual fund industry body AMFI, the assets under management of gold ETFs crossed the Rs 11,000 crore mark in September from Rs 10,701 crore in August.
In June, investor wealth in gold ETFs surpassed the psychological mark of Rs 10,000 crore; it was just above Rs 5,000 crore level till a few months ago in May 2011.
There are as many as 25 different gold ETF schemes across 14 different fund houses at present. These products, which track the metal's prices, provide an opportunity to investors to accumulate gold over a given period of time since they can be purchased in small quantities.
In the last 3 months, inflows worth Rs 500 crore have come into gold ETFs. In 2011-12, over Rs 3,600 crore was pumped while inflows of Rs 2,250 crore came in 2010-11.
Industry experts said benefits such as no risk of theft and zero storage cost compared to physical gold, have sustained this interest among investors since the first gold ETF was launched in February, 2007.
Gold prices have also more than tripled from Rs 10,000 levels to Rs 31,000 in the last five years.
These factors have contributed to the rush for gold ETFs and the category have seen assets under management soar from Rs 138 crore in April, 2007 to Rs 11,198 crore in September, 2012 -- over 80 times in 5 years.
In comparison, investor wealth in debt mutual funds has grown from Rs 33,000 crore to Rs 350,000 crore -- about 11 times. Equity mutual fund assets have grown 30 times from Rs 5,400 crore to Rs 163,000 crore in the same 65 months.
India is the largest consumer of gold with an annual demand of about 700 tonnes. Experts say that unlike gold coins and bars, for which most jewellers offer only an exchange, gold ETFs are sold at transparent prices across the country.
No sales tax, VAT, wealth tax or securities transaction tax act as sweeteners, they added.