Volatile prices, high inflows take toll on gold, silver ETFs return

The recent volatile bullion prices coupled with market inefficiencies and increased inflows have taken a toll on tracking error and total expense ratio (TER) in gold and silver exchange traded funds.

Tracking error in ETFs is a crucial performance metric measuring the difference between an ETF return and its benchmark index return. A higher tracking error represents larger deviation. It becomes even more important as gold and silver ETFs have delivered run-away return of 82 per cent and 170 per cent in last one year.

The annual percentage difference between return from gold ETFs and its benchmark index return in last one year was the lowest for ICICI Pru Gold ETF at -3.01 per cent while gold ETFs of HDFC MF and Kotak Mahindra MF were at -3.24 per cent and -3.25 per cent, according to ACE MF data.

For Nippon India Gold ETF and SBI Gold ETF, it accounted for -3.53 per cent and -3.45 per cent. These top-5 fund houses alone command a cumulative AUM of ₹1,46,350 crore in gold ETFs.

The TER of gold ETFs ranged between 0.50 per cent and 0.80 per cent.

Deveya Gaglani, Senior Research Analyst - Commodities, Axis Securities said the rising TER and tracking error in Gold and Silver ETF are primarily due to market volatility and structural inefficiencies in the local market.

As prices move rapidly, fund managers keep more cash in hand to handle sudden redemptions. Since cash earns no returns, it becomes a drag and makes ETFs underperform the metal prices, he added.

Rishabh Nahar, Partner and Fund Manager at Qode Advisors PMS said a higher TER directly reduces investor returns, as the cost is deducted from the fund’s assets on a regular basis.

“The overall return from a gold or silver ETF will be driven by price movement of the metal itself. Investors should also compare TER and tracking efficiency across ETFs before investing,” he added.

Impact on Silver ETFs

Similarly, ICICI Pru Silver ETF reported lowest tracking difference of -7.91 per cent in last one year while silver ETFs of Kotak MF and HDFC MF were at -8.76 per cent and -9.77 per cent. The same for Nippon India MF and SBI MF silver ETFs were at -9.88 per cent and 10.21 per cent. These fund houses have a cumulative AUM of ₹94,031 crore in silver ETF.

The TER for silver ETFs were between 0.40 per cent and 0.56 per cent.

Dr Renisha Chainani, Head - Research at Augmont said with gold near $5,200 and silver above $90, frequent inflows/outflows increase transaction, hedging and custody costs.

In silver, tight physical supply and higher lease rates widen the gap between spot and futures, impacting replication efficiency, he added.

Saurabh Jain, Co-founder & CEO, Stable Money said ETFs with lower AUM may also exhibit higher tracking error because fixed costs and trading spreads have a proportionately larger impact.

Investors may increasingly focus on fund size, liquidity and historical tracking consistency when making allocation decisions, he said.

Published on February 28, 2026