Gold ETFs registered ₹199-crore outflow in Jan. on profit booking, preference for equity funds

Gold exchange traded funds (ETFs) witnessed a net outflow of ₹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 ₹273 crore registered in the segment in December and ₹195 crore in November. Prior to that, gold ETFs attracted ₹147 crore in October, data with the 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 back seat. Another important factor for the outflow could be the 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 ₹21,836 crore at the end of January from ₹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, Ms. 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 ₹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 ₹13,856 crore in January from ₹13,573 crore in the preceding month. This was the fourth consecutive month when SIP flows remained above the ₹13,000-crore mark.

Overall in 2022, inflow in gold ETFs was at ₹459 crore, which was 90% lower from ₹4,814 crore registered in 2021, due to rising prices of the yellow metal and 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.

One gold ETF unit is equal to 1 gm 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.