Inflows into gold exchange traded funds dipped 63 per cent last fiscal to ₹2,537 crore against ₹6,910 crore registered in the same period previous fiscal even as investors awareness on gold plating their portfolio improved amid volatile equity market.
Inflows into Nippon India ETF Gold BeeS and HDFC Gold ETF plunged to ₹589 crore and ₹496 crore, respectively in the financial year ended March against ₹2,359 crore and ₹1,476 crore logged in the same period in 2021, as per Morningstar India data.
Similarly, SBI ETF Gold decreased to ₹200 crore (₹1,095 crore) in the same period. ETFs are the lowest cost vehicle for gold savings.
Gold ETFs aim to track the performance of gold, and like any other ETFs, are traded in the secondary market. Investors not holding a demat and trading account, can invest into gold funds, which in turn, invest into the underlying ETFs, but levy an expense ratio, in addition to the expense of the underlying gold ETF.
As gold prices peaked last fiscal, most investors booked profit in yellow metal, and ploughed it into equities which fell after a consistent rally in most part of the last fiscal.
Asset Gains
The asset under management of gold ETFs increased 37 per cent to ₹19,281 crore as of March-end against ₹14,124 crore registered in March, 2021 largely due to mark-to-market gain.. The same was ₹7,946 crore in Mach, 2020.
Nippon India Gold BeeS asset increased 29 per cent to ₹6,798 crore (₹5,277 crore) while that of HDFC Gold ETF jumped 45 per cent to ₹3,087 crore (₹2,123 crore).
ETF assets of SBI MF, ICICI MF and Kotak MF were at ₹2,565 crore (₹1,998 crore), ₹2,523 crore (₹1,693 crore) and ₹2,322 crore (₹1,539 crore).
Rise in domesitc prices
The domestic gold prices were up by about 8 per cent year-on-year in April due to the uncertainty kicked off by the Russia-Ukraine war. Since February, gold prices witnessed a sharp uptick buoyed by its safe-haven status amid geopolitical tensions, surging global inflation, and concerns over slowing global growth hit by supply-chain disruptions. Depreciation of the rupee against US dollar also boosted domestic prices to some extent.
Dhaval Kapadia, Director, Morningstar Investment Adviser India said valuation plays an important role while entering any asset class as it improves upside potential.
The growing geo-political tensions and a possibility of stagflation (high inflation-low growth) will support gold prices in the near future. However, aggressive rate hike by global central banks to tame the persistently high inflation may weigh down gold prices, he said.
Swapnil Bhaskar, Head of Strategy, Niyo – neo-bank for millennials, said, equity markets may under perform in most part of this fiscal due to inflationary pressure. Thus, gold, which has given an annualised return of about 17 per cent in the last three years is expected to shine further, he added.
Priti Rathi Gupta, Founder, LXME, a financial platform for women, said, gold is a long-term asset and investors should not be worried about it in the short run, as it ensures averaging out losses in the portfolio in the long term, during equity market falls.
The demand for gold ETFs and other forms of investing in gold electronically will see a positive trend in the coming years as investor knowledge grows and with gold being used as a tool for diversification of portfolios, she said.