Gold ETFs witness first outflow since March 2023 amid profit booking

Gold ETF outflows: Gold Exchange Traded Funds (ETFs) saw a net outflow of Rs 396 crore last month, marking the first withdrawal since March 2023, as investors engaged in profit booking activities.

Despite this decline, the assets under management (AUM) of gold funds registered a 5 per cent increase to Rs 32,789 crore at the end of April compared to Rs 31,224 crore in the previous month, according to data from the Association of Mutual Funds in India (AMFI).

In April, Gold ETFs experienced a net withdrawal of Rs 396 crore, contrasting with an inflow of Rs 373 crore in the preceding month. The last instance of net outflow in this asset class was observed in March 2023, amounting to Rs 266 crore.

"In INR terms, gold has performed reasonably well over the past year but pales in comparison to the performance of equities. Against this backdrop, flows in the Gold ETF category have been somewhat inconsistent relative to equities. Investors may have chosen to realize some profits in this segment, leading to net outflows despite price increases," commented Melvyn Santarita, Analyst at Morningstar Investment Research India.

Gold prices have recently reached new highs in both US dollar and INR terms. With ongoing geopolitical tensions and persistently high US inflation rates, the appeal of gold as a safe haven and hedge against inflation is expected to endure, Santarita added.

In 2023, Gold ETFs witnessed an inflow of Rs 2,920 crore, significantly higher than the Rs 459 crore inflow seen in 2022. The increased attractiveness of gold as a safe haven and a hedge against inflation was notable during the year.

Investor interest in gold has grown substantially in recent years, with a consistent rise in folio numbers. Folio numbers in gold ETFs increased by over 1 lakh to 51.84 lakh in April 2024 from 50.61 lakh in March 2024, indicating a growing inclination towards gold-related funds among investors.

"Investing in gold ETFs offers unparalleled advantages including liquidity, cost-effectiveness, and security," remarked Vishal Jain, CEO of Zerodha Fund House.

The preference for gold during periods of adversity is evident from the investment inflow into Gold ETFs during 2020 amid the COVID-19 pandemic.

An analysis of the period from 2019 to 2023 reveals a consistent yearly growth in the AUM of Gold ETFs. As of December 2023, the AUM was valued at Rs 25,959 crore, marking a significant increase from previous years.

Gold ETFs, which aim to track the domestic physical gold price, offer investors the flexibility of stock investments combined with the simplicity of gold investments. Each gold ETF unit is equivalent to 1 gram of physical gold, backed by gold bullion of high purity.

(With PTI inputs)