Exchange-traded funds (ETFs) in gold recorded a net outflow of ₹199 crore in January, making it the third consecutive monthly drawdown as investors favored equities over other segments on record high SIP flow.
This was in comparison with a net outflow of ₹273 crore recorded in the segment in December and ₹195 crore in November. Prior to that, gold ETFs attracted ₹147 crore in October, according to data from the Association of Mutual Funds in India (AMFI).
Kavitha Krishnan, Senior Analyst – Manager Research, Morningstar India, attributed the segment’s latest exit to a strong pull from equity-focused mutual funds, which led to other asset classes, including ETFs. auriferous. Another big driver for the exit could be rising gold prices, which likely led to profit booking in the category.
Despite the cash outflows, the category saw its net assets under management (AUM) rise to ₹21,836 crore at the end of January from ₹21,455 crore at the end of December. Furthermore, the segment witnessed an increase in the number of folios from 35,680 to 46.74 lakh during the period under review.
This suggests that gold ETFs continue to be a good way for investors to invest in gold, but are largely driven by demand and supply dynamics for physical gold, which are expected to experience peak during wedding and party seasons, Ms Krishnan said.
Given its history of being a good hedge against inflation, investors might consider investing a small percentage of their allocation in gold, she added.
On the other hand, equity mutual funds drew in ₹12,546 crore in January, making it the largest net infusion in four months, despite the volatility in equity markets.
The inflow of equity funds was driven by buoyant SIP (Systematic Investment Plan) flows, with the contribution going through the road rising to ₹13,856 crore in January from ₹13,573 crore in the previous month. It was the fourth month in a row that SIP streams remained above the ₹13,000 crore mark.
Overall in 2022, gold ETF inflows were ₹459 crore, 90% lower than the ₹4,814 crore recorded in 2021, due to rising gold prices and l increase in the interest rate structure, associated with inflationary pressures.
Gold ETFs, which aim to track the price of physical gold in the domestic market, are passive investment instruments based on gold prices and investing in gold bullion.
One ETF unit of gold is equivalent to 1g of gold and is backed by very high purity physical gold. They combine the flexibility of equity investments with the simplicity of gold investments.