At one time the hottest selling funds in India, gold exchange traded funds, have largely fallen out of grace with the investing community.

Gold ETFs also have a new element of risk. These schemes, which earlier held physical gold equivalent to the unit holders’ investments, could now tend to lend a portion of these, as part of a government move to meet gold demand through domestic sources.

In other words, ETFs in India do not directly hold all the gold their investors have paid for. This has introduced an element of credit risk to these funds, analysts maintain.