After equity schemes, it seems gold exchange-traded-funds (ETFs) are now on investors’ radars for redemption.
In June, gold ETFs witnessed an all-time-high monthly net outflow of Rs 227 crore. Thanks to the depreciating rupee, this catapulted gold prices to above Rs 30,000 per 10g, despite the price of the yellow metal softening in the global markets.
“I believe investors booked profits as the currency depreciation led to higher gold prices,” says Deepak Chatterjee, chief executive officer of SBI Mutual Fund.
Dollar-denominated gold imports to India escalate prices locally as the rupee saw sharp weakness, touching levels of as low as 57 against the dollar.
| LOSING SHEEN Several gold fund-of-funds have cut their exposure to gold by as high as 15 % over the last one month | |
| Showing net inflows/outflows across the category of assets (Rs cr) | |
| Category | Net Inflows/(Outflows) |
| Income | 1,567 |
| Equity | -186 |
| Balanced | 19 |
| Liquid/money market | -25,128 |
| Gilt | 115 |
| ELSS | -100 |
| Gold ETFs | -227 |
| Other ETFs | 15 |
| Fund of funds investing abroad | -44 |
| Total | -23,969 |
| Source : Association of Mutual Funds in India (Amfi) | |
Prior to June, one of the highest outflows from gold ETFs at Rs 41 crore in May had made industry analysts sceptical about the performance of gold as an asset class. Now, with close to six times the previous net outflows, fund managers say opportunistic selling has hit gold ETFs.
There are several gold fund of funds (FoFs) which have cut their exposure to gold by as high as 15 per cent over the last month.
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Akshay Gupta, chief executive officer, Peerless Mutual Fund, says: “It was to happen. No one had seen gold prices above Rs 30,000. So, investors, large opportunistic investors in particular, booked profits.”
Fears that global gold prices might dip to $1,200 an ounce from the current level of around $1,600 an ounce have further made Indian investors vary of investing in gold funds.
According to Gupta, in general, there is a feeling that the rupee might not depreciate further and would now stabilise. So, it made sense for investors to move out. Moreover, redemption pressure had started exerting its force when gold prices were hovering at around Rs 28,000 per 10g. Industry executives say had the rupee not depreciated, gold prices would have taken a U-turn to lower levels.
“But suddenly, currency depreciated by more than 10 per cent and investors held on at Rs 28,000 and made an opportunistic move when gold prices reached Rs 30,000,” notes Gupta.
According to Sunil Singhania, head of equities at Reliance Mutual Fund: “Gold should be used as a hedge. I would suggest investors not to put more than 5-10 per cent of their investment in gold.”
With a significant chunk of outflows from gold funds, the overall net outflows from this asset category in the first quarter (April-June) of FY12 have reached Rs 218 crore against a net inflow of Rs 942 crore during the previous corresponding period.
Equity funds, too, were hit in June as Rs 288 crore flowed out of the schemes. Though income, balanced and other exchange-traded-funds managed to garner some fresh assets; heavy outflow from liquid and money market schemes at Rs 26,128 crore brought overall flows into negative territory.
Outflows seen in the liquid and money market category were owing to the quarter-ending phenomena, during which banks and corporates tend to redeem to meet their advance tax payments and other financial requirements.