Gold ETFs register Rs 199-crore outflow in Jan on profit booking, preference for equity funds

Gold exchange traded funds (ETFs) witnessed a net outflow of Rs 199 crore in January, making it the third monthly withdrawal in a row, with investors preferring equities over other segments on buoyant record SIP flow. This was in comparison to a net outflow of Rs 273 crore registered in the segment in December and Rs 195 crore in November. Prior to that, Gold ETFs attracted Rs 147 crore in October, data with Association of Mutual Funds in India (Amfi) showed.

Kavitha Krishnan, Senior Analyst – Manager Research, Morningstar India, attributed the latest outflow from the segment to a lot of traction in equity-oriented mutual funds, which led to other asset classes, including Gold ETFs taking a backseat. Another important factor for the outflow could be uptick in gold prices, which has likely led to profit booking in the category.

Despite the outflows, the category saw its net assets under management (AUM) rising to Rs 21,836 crore at the end of January from Rs 21,455 crore in December-end. Also, the segment saw an increase in the number of folios by 35,680 to 46.74 lakh during the period under review.

This suggests that Gold ETFs continue to be a good avenue for investors to invest into gold but are largely driven by the demand and supply dynamics of physical gold, which is likely to witness a spike during the wedding and festive seasons, Krishnan said.

Given its history of being a good hedge against inflation, investors could consider investing a small percentage of their allocation into gold, she added.

On the other hand, equity mutual funds have attracted Rs 12,546 crore in January, making it the highest net infusion in four months, despite volatility in stock markets.

The inflow in equity funds was driven by buoyant SIP (Systematic Investment Plan) flows with contribution through the route increasing to Rs 13,856 crore in January from Rs 13,573 crore in the preceding month. This was the fourth consecutive month when SIP flows remained above the Rs 13,000-crore mark. Overall in 2022, inflow in Gold ETFs was at Rs 459 crore, which was 90 per cent lower from Rs 4,814 crore registered in 2021, due to rising prices of yellow metal, increasing interest rate structure coupled with inflationary pressures.

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 investment and the simplicity of gold investments.

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