Gold ETFs snap three-quarters of outflow, attract Rs 298 crore in June quarter

New Delhi: After three straight quarters of outflows, gold exchange-traded funds (ETFs) attracted Rs 298 crore in the April-June period, and experts believe that investors will continue to invest some portion of their assets in the safe haven product.

However, the inflows were down by almost 80 per cent compared to the year-ago period. On the other hand, the asset base of gold ETFs and investors' account or folio numbers increased in the quarter under review, the Association of Mutual Funds in India (Amfi) data showed.

According to data, gold-linked ETFs have seen an inflow of Rs 298 crore in the April-June quarter of the current fiscal (2023-24). This came following an outflow of Rs 1,243 crore in the March quarter, Rs 320 crore in the December quarter, and Rs 165 crore in the September quarter. Before that, Gold ETFs witnessed an inflow of Rs 1,438 crore in the quarter ended June 2022.

The moderate flows into Gold ETFs in the last few quarters could be because of combinations of removal of long-term capital gain benefits and relative underperformance of gold as compared to domestic equities, Alekh Yadav, Head of Investment Products, at Sanctum Wealth, said. Himanshu Srivastava, Associate Director - Manager Research at Morningstar India, said the flows into the category have been slowing down over the last few months. This could be largely attributed to investors drifting towards better-performing asset classes such as equities. Also, gold prices are trading at elevated levels which might be prompting investors to stay on the sidelines and adopt a more calibrated approach towards investing, he added.

Gold, with its superlative performance over the last few years, has attracted significant investor interest and the consistent surge in its folio numbers is a testimony of the same. The folio numbers in gold ETFs climbed by 1.5 lakh to 47.52 lakh in the June quarter from 46.06 lakh a year earlier. This shows that investors have become more inclined toward gold-related funds. Further, the assets under management of gold ETFs surged by 10 per cent to Rs 22,340 crore in June 2023 from Rs 20,249 crore in the same quarter preceding fiscal.

"Most of the increase in AUM has been on account of the rally in INR gold price. Over the last one-year INR gold prices have moved up by more than 10 per cent," Sanctum Wealth's Yadav said. Going ahead, Yadav said that multiple factors remain supportive of gold. A weak dollar, strong demand by central banks, and still elevated global inflation are supportive of gold. "Further historically gold has performed well before, during, and after US recessions. While the market is divided on the severity of the US recession, gold exposure may provide a hedge if the expected US recession turns out more severe than expected. Hence, we remain overweight," he added.

Srivastava investors may continue to invest some portion of their investable assets in gold ETFs as pertinent risks still engulf developed economies. Gold ETFs, which track the domestic physical gold price, are passive investment instruments that are based on gold prices and invest in gold bullion. In short, gold ETFs are units representing physical gold which may be in paper or dematerialized form.

One gold ETF unit is equal to one gram of gold and is backed by physical gold of very high purity. They combine the flexibility of stock investments and the simplicity of gold investments.