Gold exchange-traded funds (ETFs) attracted Rs 1,328 crore from investors in the quarter ending June 2021 and experts believe inflows will continue in the coming months of the fiscal year. In comparison, the inflow into the category was much higher at Rs 2,040 crore in the same quarter last year, according to data available from Association of Mutual Funds in India (Amfi).
Quantum Mutual Fund Sr Fund Manager, Alternative Investment, Chirag Mehta said inflows into gold ETFs were significant in June last year due to the significant economic uncertainty caused by the COVID-19 pandemic. Given the optimism about the economic recovery, inflows have slowed slightly this year.
“The higher net inflows into gold ETFs last year can be attributed to the start of the pandemic that created massive uncertainties about asset prices and inflation, leading many investors to turn to gold ETFs,” said Arshad Fahoum, Chief Product Officer at Market Pulse . . With similar views, Green Portfolio co-founder Divam Sharma said there was high inflows into gold ETFs in the first half of 2020-21 as uncertainty with Covid 1.0 and investors wanted to diversify cash into this asset class.
“With the resumption of business and the increasingly outperforming stock markets, gold allocations shifted. Bitcoin has also been a bummer for hold prices and therefore asset class allocations have been under pressure,” he added. During the first three months of 2021, gold ETFs saw a net inflow of Rs 1,779 crore and in the subsequent three months such instruments witnessed a net infusion of Rs 1,328 crore, Amfi data showed. Despite a slowdown in inflows, the assets under management (AUM) of gold ETFs rose sharply to Rs 16,225 crore at the end of June 2021, from Rs 10,857 crore at the end of June 2020.
At the same time, investor accounts or folios in gold ETFs rose three-fold to 18.32 lakh in the reporting period from 6.31 lakh in June 2020. Investors are steadily recognizing the need to add gold to their portfolio as a diversification tool and this is evidenced by the fact that the category has received a net inflow of Rs 9,737 crore from January 2020 to June 2021.
Gold acts as a strategic asset in an investor’s portfolio, given its ability to act as an effective diversification, and to mitigate losses during difficult market conditions and economic downturn, said Himanshu Srivastava, Associate Director – Manager Research, Morningstar India. Going forward, Market Pulse’s Fahoum expects the current fiscal year to attract more inflows into gold ETFs, especially if gold prices remain strong in the near term. In addition, with major global indices at record highs, concerns about the pandemic or declining bond yields coupled with higher inflation concerns could lead to caution among the investor population, which could further bolster gold prices and eventual gold inflows. ETFs, he added.
Quantum Mutual Fund’s Mehta also expects inflows into gold ETFs to continue as investors have recognized the importance of gold in their portfolio and continue to be under-allocated from a portfolio perspective. “Gold ETFs will continue to be a vehicle of choice due to its price efficiency and liquidity.
Gold is considered an asset useful during emergencies and last year’s lockdowns dried up much of retail liquidity,” he added. Gold ETFs are basically exchange-traded funds that invest in gold. They are traded on the stock market and make direct investments in gold.
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Story first published: Sunday, July 18, 2021, 11:44 [IST]