Gold and silver ETFs rally 40% in a year; what’s the best mutual fund strategy?

With gold and silver prices surging to all-time highs, exchange-traded funds (ETFs) based on these precious metals have delivered strong returns of up to 40% over the past year.

Gold ETFs have generated an average return of 40.44% over the last 12 months, with 16 gold ETFs actively traded in the market during this period. Among them, Tata Gold ETF delivered the highest return at 40.76%, followed closely by ICICI Prudential Gold ETF at 40.74%. The lowest return among the group came from Invesco India Gold ETF, which still posted a solid 39.69% gain.

Silver ETFs also performed well, with an average return of 36.14% over the same period. The market currently hosts 21 silver ETFs, with Tata Silver ETF topping the list at 36.78%, followed by Aditya Birla Sun Life Silver ETF at 36.72%. The SBI Silver ETF Fund of Fund (FOF) offered the lowest return, at 35.45%.

Two funds offering combined exposure to gold and silver—Edelweiss Gold and Silver ETF FoF and Motilal Oswal Gold and Silver ETFs FoF—have delivered impressive returns of 38.07% and 38.72%, respectively, over the past year.

Market experts attribute this rally to geopolitical tensions, tariff-related uncertainties, and strong industrial demand, especially for silver. As a result, they recommend that investors allocate 15–20% of their diversified portfolios to precious metals as part of a broader asset allocation strategy.

“Precious metals, especially gold, perform very well in uncertain times. Due to geopolitical tensions and tariff-related uncertainty, gold and silver prices have reached record highs. Silver is at a decade high due to strong industrial demand. Investors should allocate money to gold and silver as an asset allocation tool and a hedge against uncertainty. In my opinion, 15–20% of a diversified portfolio should be in gold and silver,” said Pallav Agarwal, Certified Financial Planner at Bhava Services LLP, speaking to ETMutualFunds.

Another expert emphasized a balanced portfolio approach, recommending an 80:20 equity-to-debt ratio. However, for those seeking exposure to gold, an allocation of up to 10–20% is suggested. The sharp inflows into gold ETFs in June reflect increased investor interest amid market volatility and global uncertainty.

“We suggest investors maintain a balanced portfolio with an 80:20 equity-debt allocation. But if one wants exposure to gold, it should not exceed 10–20% of their portfolio. Gold is a defensive asset that provides diversification and hedging benefits. However, it’s important to view it from a portfolio-level perspective, as debt also serves a similar role,” said Shweta Rajani, Head – Mutual Funds at Anand Rathi Wealth Limited.

“The surge in silver demand is primarily driven by industrial use, especially in semiconductors, solar panels, electric vehicles, and green technologies. We do not suggest having silver in the portfolio, as it is more demand-driven and closely tied to industrial cycles,” she added.

On Monday, gold and silver prices in India soared to new all-time highs, crossing ₹1.05 lakh and ₹1.24 lakh per kg, respectively. According to ETMutualFunds, both metals jumped over 1% on the MCX, driven by a weaker dollar and strong safe-haven demand.

The report further noted that gold and silver continued to show strength last week following the implementation of higher U.S. trade tariffs on India. Factors such as safe-haven buying, the possibility of Federal Reserve rate cuts, and the rupee hitting lifetime lows against the U.S. dollar all contributed to the rally in domestic prices.

In response, Agarwal emphasized the importance of viewing these metals through the lens of long-term asset allocation rather than speculative trading.

“Gold and silver should be part of an investor’s portfolio as part of an asset allocation strategy. Prices are sustainable over the long term, and any further investments should be made with that perspective—not in anticipation of short-term gains,” he said.

On the other hand, the expert from Anand Rathi Wealth noted that after two months of negative flows (March & April), the recent surge in gold and silver fund inflows signals speculation-driven behavior, with investors chasing returns after recent price rallies. This indicates a classic case of “recency bias”, where investors react to short-term performance rather than long-term strategy.

“Gold is a defensive asset with low correlation to equity. During periods of fear or uncertainty, gold prices tend to rise. However, the total allocation to gold in your portfolio should not exceed 20%,” advised Shweta Rajani, Head – Mutual Funds, Anand Rathi Wealth.

She further recommended that those looking to increase their exposure to gold or silver should avoid lump sum investments at peak levels. Instead, Systematic Investment Plans (SIPs) are a better approach to average out costs and mitigate short-term volatility.

“There are multiple ways to invest in gold—via gold funds, ETFs, physical gold, sovereign gold bonds, or even multi-asset funds. The same goes for silver,” she added.

Types of Gold Investments

Gold funds: Ideal for portfolio diversification. Financial advisors suggest allocating around 10% if you have a large portfolio. For small or beginner portfolios, you may choose to skip it. Investors should remember that these funds are not designed for consistent high returns, but to provide stability and diversification.

Gold ETFs: These are exchange-traded funds that track the price of physical gold. Each unit usually represents one gram of gold. You need a demat and trading account to invest in these, and they offer liquidity, transparency, and convenience—better than physical gold in many ways.

Multi-Asset Allocation Funds: These hybrid funds invest a minimum of 10% in at least three asset classes—typically equity, debt, and gold. Some also include international equities, InvITs, or REITs.

Differing Expert Views on the Best Strategy

The two experts offered contrasting views on the best way to invest in gold and silver.

Pallav Agarwal recommends multi-asset allocation funds as the most effective way to invest in these commodities, due to professional fund management and dynamic allocation based on in-house research models.

“Multi-asset allocation funds are also tax-efficient. If an investor reallocates assets manually across different classes frequently, they might incur high short-term capital gains tax. A professionally managed fund helps avoid that,” he explained.

In contrast, Shweta Rajani prefers ETFs for their liquidity, ease of access, and transparency, making them a more practical alternative to physical gold or silver.

“Investing in FoFs attracts multiple expense ratios, which can reduce investor returns. Meanwhile, multi-asset allocation funds don’t offer investors direct control over their asset allocation. Therefore, ETFs remain the most suitable option for investing in precious metals. However, investors should avoid lump-sum entries and prefer SIPs to average out costs and manage volatility,” said Shweta Rajani, Head – Mutual Funds, Anand Rathi Wealth.

Gold & Silver ETF Performance in 2025 YTD

In the current calendar year, Gold ETFs have delivered an average return of 32.98%, with Axis Gold ETF posting the highest return at 33.31%, and LIC MF Gold ETF offering the lowest at 32.39%.

Silver ETFs have outperformed gold slightly, delivering an average return of 35.08% so far in 2025. Axis Silver ETF led the pack with a return of 35.56%, while Tata Silver ETF came in lowest at 34.03%.

Long-Term View: Tactical Entry or Strategic Allocation?

Despite the strong recent performance, Rajani does not recommend tactical entries into gold or silver with a short-term view of 6 to 12 months. Citing historical data, she noted that the probability of earning over 12% CAGR from gold over a 10-year period is only 11.8%, while for silver, it drops to just 3.58%.

“For long-term wealth creation, equity—especially the Nifty—has a far higher probability of beating inflation and compounding wealth. In contrast, gold and silver offer lower risk-adjusted returns and carry higher standard deviation. Gold should be seen as a defensive asset, similar to debt, and together their allocation in a portfolio should not exceed 20%,” Rajani added.

Outlook for 6–12 Months: Global Cues Will Drive Moves

Offering a 6–12 month outlook, Pallav Agarwal, Certified Financial Planner at Bhava Services LLP, said the path forward for gold and silver prices will largely be dictated by global macroeconomic factors, including:

- Geopolitical tensions

- US Federal Reserve policy

- Tariff-related developments

“If the current uncertainty persists, prices will likely remain elevated. However, if tensions ease, we could see some cooling off,” Agarwal observed.

Final Advice: Align Investments with Goals

Both experts emphasized that investors should align their decisions with their risk appetite, investment horizon, and long-term goals, rather than chasing recent returns.

Source: https://economictimes.indiatimes.com/