The latest inflow of gold exchange-traded funds has helped the number of folios in this category grow by over 14% to 24.6 lakh in September, from 21.46 lakh in the previous month.
Gold exchange-traded funds (ETFs) attracted Rs 446 crore in September and inflows are likely to continue in the coming months due to strong demand due to the festive season in the country.
The demand was sharply higher than the net inflow of ₹24 crore recorded in the previous month. Data from the Association of Mutual Funds in India (Amfi) shows that in July, the category saw a net withdrawal of Rs 61.5 crore.
With this, the Gold ETF category has received a net inflow of Rs 3,515 crore so far. This segment saw only one month of net outflows, which was in July.
The latest influx helped increase the number of folios in the category by over 14% to 24.6 lakh in September, from 21.46 lakh in the previous month. The number of folios has increased by 56 per cent so far this year.
Market experts attributed the fall in yellow metal prices in September and inflows to the start of the festive season in the country.
“Gold ETFs saw a major inflow last month. In the thick of a volatile market, resorting to a safer instrument could be one of the reasons for the move, with rising gold prices being another reason to draw attention to the instrument. ” Preeti Rathi Gupta, Founder, LXME said.
Arshad Fahoum, Chief Product Officer, MarketPulse, said the ongoing rally in global equities, coupled with a strong rally in Indian equities in 2021, may caution investors against further upside, which seems to indicate a downside in gold prices. has endorsed. Outside. “If we look at the period from July to mid-September, there was a strong rally in Indian equities, which may mean investors are opting for equity-based and debt funds, which, in turn, were net gold ETFs in July. The reason for the outflow could be, marginally positive inflows in August and heavy inflows in September,” he said.
Another interesting aspect is the outflow in Gold ETFs experienced by the US, UK and Canada in September 2021, while Indian Gold ETFs saw a significant inflow in the month under review. He added that this could also be an indication that the onset of the festive season in India may have helped the rising gold ETF inflows in September 2021.
Himanshu Srivastava, Associate Director- Manager Research, Morningstar India, said that since June this year, gold prices are registering a decline. Gold is considered a safe haven during economic downturns and when equity markets go through turbulent times. “However, an uptrend in equity markets and expectations of an economic recovery have not bode well for gold in the recent past. Besides, a firmer dollar and buoyancy in US Treasury yields have adversely affected gold prices,” he added. “
According to him, the correction in the yellow metal’s price over the past few months provided a good buying opportunity for investors, resulting in strong inflows into the Gold ETF category.
Investments in ETFs that track the yellow metal have been on the rise since August 2019.
However, the asset class saw a net outflow of ₹141 crore in November 2020, ₹195 crore in February 2020 and ₹61.5 crore in July 2021.
Mr Srivastava said gold serves as a strategic asset in an investor’s portfolio, given its ability to act as an effective diversification, and minimize losses during tough market conditions and economic downturns. “This is where it makes its safe-haven appeal.” “During the challenging investment climate in the recent past, gold emerged as one of the better performing asset classes, thus proving its effectiveness in the portfolio of investors,” he added.
He added that this aspect has not gone unnoticed by investors, which is evident from the consistent net inflows into the gold ETF category.
Despite the inflows, the asset under management (AUM) of gold ETFs declined to ₹16,337 crore at the end of September from ₹16,350 crore at the end of August. It was ₹16,750 crore at the end of July.
Going forward, Mr Fahoum of Market Pulse said that inflows into gold ETFs will remain positive in the coming months, mainly due to the rally in gold prices since the beginning of October 2021 and strong festive season demand in India. Secondly, since overheating in equity markets and rising inflationary pressures for diversification, more investors may choose to invest in gold ETFs, he said.
“With festivals approaching, one can expect an upcoming demand for gold investments in a portfolio, leading to higher inflows for the coming months,” said Ms Gupta, LXME. Gold ETFs are basically exchange traded funds that invest in gold. They are traded in the stock market and have direct investment in gold.
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