Gold ETFs, which track the domestic physical gold price, are passive investment instruments that are based on gold prices and invest in gold bullion
Inflow in gold exchange-traded funds (ETFs) dropped 74 per cent year-on-year to Rs 653 crore in 2022-23, mainly due to profit booking in this asset class and investors' preference for equities. However, the asset base of gold ETFs and investors' account or folio numbers increased in the last fiscal, data from the Association of Mutual Funds in India (Amfi) showed.
Most of the investors are still preferring equity-oriented mutual funds over the other asset, with the segment registering a net inflow of over Rs 2 lakh crore in FY23. Also, investors have redeemed their investments in gold in favour of other asset classes. According to data available from the Association of Mutual Funds in India (Amfi), 14-gold linked ETFs have seen an inflow of Rs 653 crore in the fiscal year that ended on March 31 this year. This was way below than Rs 2,541 crore inflow seen in the segment in 2021-22 and Rs 1,614 crore in 2019-20.
Before that, gold ETFs witnessed outflows of Rs 412 crore in 2018-19, Rs 835 crore in 2017-18, Rs 775 crore in 2016-17, Rs 903 crore in 2015-16, Rs 1,475 crore in 2014-15 and Rs 2,293 crore in 2013-14. The segment witnessed an infusion of Rs 1,414 crore in 2012-13. Over the last few years, retail investors poured more money into equities compared to gold ETFs, mainly on account of decent returns.
Kavitha Krishnan, Senior Analyst - Manager Research, Morningstar India, attributed the lower magnitude of year-on-year inflows in FY23 to investors' preference towards other asset classes. "There is a marked preference towards equity and a slightly higher risk appetite amongst domestic investors, which is evident in the continued inflows that we have witnessed in equity categories. A weakening rupee and the continued uptrend of the US Dollar have also had a significant impact on gold prices, making them more expensive. This could have had an impact on the overall flows into Gold ETFs," she said.
In March, inflation declined to a 15-month low, because of which investors redeemed in favour of other investment avenues, based on their expectations around India's growth story, she added. "The Government of India launched four tranches of Sovereign Gold Bonds in FY23, which could have impacted the inflows into Gold ETFs. In India, from a low of Rs 49,000 in September 2022, Gold prices rose to Rs 59,400 by the last week of March 2023, providing a return of 21.3 per cent in just six months.
"This prompted investors to book profits to end the year on a positive note, as equities and other asset classes delivered negative to negligible returns," Gopal Kavalireddi, Research Head of FYERS, said. Experts believe an uptrend of gold in CY23, as fears of recession traverse across many developed nations. "With inflation still persisting above the comfort levels, central banks’ outlook on interest rates and economic growth prospects remaining fragile, gold prices could move up by another 10-15 per cent in the current year," Kavalireddi said.
The positive inflow helped in pushing assets under the management of gold funds by 18 per cent to Rs 22,737 crore at the end of March 2023 from Rs 19,281 crore a year ago. Gold, with its superlative performance over the last few years, has attracted significant investor interest and the consistent surge in its folio numbers is a testimony of the same. The folio numbers in gold ETFs surged by 4.58 lakh to 47 lakh in March 2023 from 42.42 lakh a year earlier. This shows that investors have become more inclined towards gold-related funds.
Gold ETFs, which 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.