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Investors infused over ₹1,600 crore in gold exchange-traded funds (ETFs) in 2019-20, after pulling out money for the last six financial years, as the coronavirus outbreak spurred safe-haven buying.
Given the threat posed by the coronavirus pandemic to the global economy and markets, this segment may continue to gain traction going ahead, said Himanshu Srivastava, Senior Analyst Manager Research, Morningstar India.
The inflows meant asset under management (AUM) of gold funds surged by 79 per cent to ₹7,949 crore at the end of March 2020, from ₹4,447 crore in March-end 2019, data from the Association of Mutual Funds in India (AMFI) showed.
Over the last few years, retail investors poured more money into equities as compared to gold ETFs, mainly on account of decent returns.
As per AMFI data, investors put in a net sum of ₹1,613 crore in 14 gold-linked ETFs in the just concluded financial year, while they had pulled out ₹412 crore in 2018-19. The safe haven asset had witnessed net outflows of ₹835 crore in 2017-18, ₹775 crore in 2016-17, ₹903 crore in 2015-16, ₹1,475 crore in 2014-15 and ₹2,293 crore in 2013-14. However, the segment had witnessed an infusion of Rs 1,414 crore in 2012-13.
Coronavirus fears
Harsh Jain, co-founder and COO at Groww, said it is safe to assume that this big investment into gold ETFs was driven by fears arising from coronavirus and its impact on the markets.
Echoing the views, Srivastava said, “With coronavirus pandemic hanging as a spectre on the global economy and markets worldwide, gold, with its safe-haven status, has emerged as a preferred investment destination among investors.”
“Gold functions as a strategic asset in an investor’s portfolio given its ability to act as an effective diversifier and alleviate losses during tough market conditions and economic downturns. This is where it draws its safe-haven appeal, which has been in full display since 2019, with the yellow metal witnessing one of its best rallies after 2011,” he added.
The latest inflow comes amid a sell-off in broader markets and sharp plunge in international crude oil prices.
Investment into gold ETFs picked up in January this year with investors putting in ₹202 crore, which was the highest level in seven years. That was followed by an all-time high investment of ₹1,483 crore in February.
Profit booking
The surge in gold prices also bought with it profit booking opportunity for investors, and they made good use of it. As a result, the gold ETF category witnessed a net outflow of ₹195 core in March. Experts said for investors who want liquidity, gold ETFs are a better bet.
Besides, prices of such instruments are similar irrespective of the geographical location. In the case of physical gold, prices vary from city to city and jeweller to jeweller. Gold-backed ETFs are passive investment instruments that are based on price movements and investments in physical gold.
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