As gold allures investors, assets under ETF swell

The stupendous run in gold prices in the past two years after almost eight years has boosted investor confidence in gold as a long-term investment.

Gold returns remained muted since 2011 before regaining its shine last year on its safe-haven appeal amid fear of global economic slowdown.

Inflows into gold exchange-traded funds more than doubled in June to ₹494 crore from ₹202 crore logged in January; it peaked to ₹1,483 crore in February, according to data sources from AMFI (Assocation of Mutual Funds in India). With the constant run-up in gold prices, gold ETFs have seen steady inflows expect an outflow of ₹195 crore in March.

Despite investors booking profit consistently, the asset under management (AUM) of gold ETFs has increased 75 per cent to ₹10,857 crore in the past six months largely on account of spike in gold prices and steady inflows.

Sundeep Sikka, ED and CEO, Nippon Life India Asset Management, said amid the Covid crisis, gold has been scaling new all-time highs, leading to a FOMO (Fear Of Missing Out) syndrome among retail investors.

Due to the pandemic, investor demand in Gold BeES has surged 30 per cent in investor base and 2.5 times increase in volumes in June quarter, he added.

Unlike in India, globally ETFs are the most popular mode of investment in gold and the AUM is about $100 billion (₹7.50 lakh crore).

In India, the mutual fund industry has demanded that investors in gold ETFs for one year should get the long-term capital gain benefit, which, at present, is availabae to those who stay invested for three years.

Himanshu Srivastava, Associate Director (Research), Morningstar India, said gold ETFs last year clocked an average return of 22.7 per cent when equity markets witnessed increased volatility and the returns from equity-oriented funds were not compelling.

He added that gold ETF has emerged as the best-performing asset and a preferred destination among investors so far this year, delivering an average return of 29 per cent with economies around the globe staring at a recession due to the pandemic

Similarly, gold funds of mutual funds have also delivered stupendous annualised return of 70 per cent to 47 per cent in past one year. DSP World Gold Fund, which has an AUM of ₹539 crore, tops the table with return of 70 per cent in past one year.

Nippon India Mutual Fund with the highest asset under management of ₹1,020 crore had delivered 49 per cent return in past one year. About 10 fund houses have gold-focused schemes with the overall asset under management of ₹3,500 crore.