Gold ETFs see first outflow after March 2023 at Rs 396 crore on profit booking

Gold Exchange Traded Fund (ETF) witness a net outflow of Rs 396 crore last month, making it the first withdrawal after March 2023, owing to profit booking.

Despite the decline, the asset under management (AUM) of gold funds rose 5 per cent to Rs 32,789 crore at April-end from Rs 31,224 crore in the preceding month, according to the data with the Association of Mutual Funds in India (Amfi).

As per the data, Gold ETFs saw a net withdrawal of Rs 396 crore in April as compared to an inflow of Rs 373 crore in the preceding month.

The last time this asset class witnessed net outflow was in March 2023, withdrawing Rs 266 crore.

"In INR terms, gold has done fairly well over the last year but dwarfs in comparison to how equities have fared. Given this backdrop, flows in the Gold ETF category have been somewhat patchy relative to the equity asset class. That said, investors could have opted to book some profits in this segment which has resulted in the asset class witnessing net outflows despite the rise in prices," Melvyn Santarita, Analyst, Morningstar Investment Research India, said.

Recently gold prices in US dollar terms as well as INR terms have scaled new highs. With ongoing geopolitical tensions, US inflation still higher than the desired number, the appeal of gold as a safe haven and hedge against inflation is expected to continue, he added.

In 2023, Gold ETFs witnessed an inflow of Rs 2,920 crore, which was way higher than the Rs 459 crore inflow seen in 2022. The attractiveness of gold as a safe haven and a hedge against inflation enhanced significantly during the year.

Investors turned to this traditional safe haven owing to rising inflation, subsequent interest rate hikes, and geopolitical events, seeking a secure investment option.

Gold, with its superlative performance over the last few years, has garnered substantial investor interest and the consistent increase in folio numbers serves as a testament to its attractiveness.
The folio numbers in gold ETFs rose by over 1 lakh to 51.84 lakh in the month under review from 50.61 lakh in March 2024. This indicates a growing inclination among investors towards funds related to gold.

"Investing in gold ETFs offers unparalleled advantages including liquidity, cost-effectiveness, and security," Vishal Jain, CEO, Zerodha Fund House said.

Preference for gold during the time of adversity is also notable from the investment inflow into Gold ETFs during 2020 when the world was engulfed with the COVID-19 pandemic.

An analysis for the period between 2019 to 2023 shows that yearly growth in AUM of Gold ETFs has been on the rise. The AUM increased significantly from Rs 5,528 crore in December 2019 to Rs 13,819 crore in December 2020 during the pandemic period.

As of December 2023, the AUM was valued at Rs 25,959 crore, marking a substantial increase of 27 per cent from December 2022, 88 per cent from December 2020 and 41 per cent from 2021.

Gold ETFs, which aim to 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 dematerialised form.

One gold ETF unit is equal to 1 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.