Gold ETFs See a Drop in Outflows and Attract Rs 298 Crore in June Quarter
Gold exchange-traded funds (ETFs) in India have experienced a significant turnaround in the April-June quarter, attracting Rs 298 crore in inflows after three consecutive quarters of outflows, according to data from the Association of Mutual Funds in India (Amfi). While the inflows are down by 80% compared to the same period last year, experts believe that investors will continue to allocate a portion of their assets to gold, considering it a safe haven investment.
The increase in the asset base of gold ETFs and the number of investors’ accounts or folios further supports this trend. The data shows that gold-linked ETFs received an inflow of Rs 298 crore in the April-June quarter of the current fiscal year, following outflows of Rs 1,243 crore in the March quarter, Rs 320 crore in the December quarter, and Rs 165 crore in the September quarter. This comes after a significant inflow of Rs 1,438 crore in the quarter ending June 2022.
The recent moderate inflows into gold ETFs can be attributed to the removal of long-term capital gain benefits and the relative underperformance of gold compared to domestic equities, according to Alekh Yadav, Head of Investment Products at Sanctum Wealth. Himanshu Srivastava, Associate Director – Manager Research at Morningstar India, also suggests that investors are turning towards better-performing asset classes such as equities, given the elevated prices of gold.
Despite these factors, the popularity of gold as an investment is evident from the surge in folio numbers, which increased by 1.5 lakh to 47.52 lakh in the June quarter, compared to 46.06 lakh in the previous year. The consistent rise in folio numbers indicates a growing inclination towards gold-related funds.
Additionally, the assets under management of gold ETFs witnessed a 10% surge, reaching Rs 22,340 crore in June 2023 from Rs 20,249 crore in the preceding fiscal quarter. Yadav points out that this increase is largely due to the rally in INR gold prices, which have risen by more than 10% over the past year.
Looking ahead, several factors remain supportive of gold as an investment. A weak dollar, strong demand by central banks, and continued global inflation create a favorable environment for gold. Moreover, historically, gold has performed well before, during, and after US recessions. Yadav suggests that gold exposure may serve as a hedge if the expected US recession turns out to be more severe than anticipated.
While some investors may continue to allocate a portion of their assets to gold ETFs, others may prefer to focus on other asset classes or take a more cautious approach due to the high prices of gold. The versatility of gold ETFs, which combine stock investments with the simplicity of gold investments, makes them an appealing option for investors.
In conclusion, gold ETFs in India have experienced a turnaround with inflows in the April-June quarter after continuous outflows. While the inflows have reduced compared to the previous year, investors are still showing a preference for gold as a safe haven investment. The rise in folio numbers and assets under management further indicate the sustained interest in gold. However, factors such as underperformance compared to equities and the elevated prices of gold are influencing investor decisions. Despite this, gold remains an attractive investment option due to factors like a weak dollar, strong central bank demand, and ongoing global inflation.
