Gold exchange-traded funds (ETFs) witnessed a net outflow of Rs 248 crore in February, making it the second consecutive month of withdrawals as investors preferred equities over other segments on record SIP flows.
Net outflows from the gold ETFs were at Rs 452 crore in the month of January. Prior to that, the asset class had seen a net investment of Rs 313 crore, according to the data of the Association of Mutual Funds in India (Amfi).
Despite the outflows, the category witnessed an increase in net assets under management (AUM) of gold ETFs to Rs 18,727 crore at the end of February from Rs 17,839 crore in January-end. Also, the segment saw a surge in the number of folios by 3.09 lakh to 37.74 lakh during the period under review.
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This move could be directed towards gold assets being considered as a tool for diversification of the portfolio by the investors and a hedge against market volatility, Priti Rathi Gupta, Founder, LXME, said.
She attributed the latest outflow from gold ETFs to two factors -- investors could be diverting their investments from gold instruments to equity as a portfolio rebalancing strategy due to the attractive returns garnered by the equity markets. Also, investors view this market correction as an opportunity to enter the markets.
"Secondly, given the rise in prices of gold, traders may have booked the profits and exited their trades for managing their margin money for trade in other asset classes," she added.
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Kavitha Krishnan, Senior Analyst - Manager Research, Morningstar India, said that investors have almost always favored gold as an asset that can be used to mitigate risks and diversify their investments.
Over time, the rising prices of gold and the increasing appeal around the commodity have led to a lot of investors choosing to invest in gold ETFs. However, the category has been witnessing outflows for the second month in a row.
"With equities garnering the most flows and SIP (systematic investment plan) touching record highs, investors seem to prefer this segment over the others, including gold ETFs. Moreover, investors also seem to be booking profits by redeeming their investments, given the uptick in gold prices," she added.
In the entire 2021, gold ETFs attracted Rs 4,814 crore primarily due to the firming of inflation and elevated market valuations. The inflow was lower compared to Rs 6,657 crore seen in 2020.
Gold ETF, which aims to track the domestic physical gold price, are passive investment instruments that are based on gold prices and investing in gold bullion.
In short, gold ETFs are units representing physical gold which may be in paper or dematerialized 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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