Domestic gold ETFs get record flows, up 7x over previous month's tally

Category sees highest flows since 2008, experts say investors are chasing gold-linked products due to robust trailing returns and safe-haven appeal

The spike in market volatility has prompted mutual fund (MF) investors to lap up units of gold exchange-traded funds (ETFs), with the category seeing highest flows since 2008.

In February, net flows into the schemes stood at Rs 1,483 crore, which was seven-times of flows ETFs received in previous month.

Experts say investors are chasing gold-linked products due to robust trailing returns and because they are seen as a safe haven amid current market volatility.

"Gold has seen sharp rally in prices, which is why investors are pouring into this asset class as it is showing returns. Also, the uncertain conditions globally amid the Coronavirus scare, has prompted investors to look for pockets of safety," said Vidya Bala, co-founder of primeinvestor.in.

In 2019-2020, the gold prices are up 37 per cent in domestic markets. Since low of August, 2018, the prices are up 48 per cent.

To tap the investor appetite for gold-linked products, government recently launched tenth series of sovereign gold bonds. However, experts say that ETFs are more practical for investors looking to hedge.

"Sovereign gold bonds are not very liquid. If an investor wants to enter for short- to medium-term, than ETFs make more sense. However, those looking for long-term investment can opt for gold bonds," Bala added.  

The latter also offers fixed coupon payments along with capital appreciation on gold prices.

However, industry experts say that entering gold-linked products at current levels may lead to muted returns, as the prices have already run-up with significant gains.

SIPs see marginal dip

Meanwhile, systematic investment flows (SIPs) in the MF industry saw a marginal dip in February at Rs 8,513 crore. Equity flows coming into the industry have so far been holding up, with February tally coming in at 11-month high. The flows were at Rs 10,795 crore, 37 per cent higher than previous month's tally.

However, MF advisors say that the flows can come under pressure as market volatility is likely to heighten with outbreak of Coronavirus scare showing no signs of abating.

Industry participants say following Monday's 2,000-point crash, several clients have started to call their advisors to assess the impact on their investments and future course of action.

"However, we have been advising our clients to stay put with their goal-linked investments. Only if they are close to reaching their goals, they can consider withdrawing their investments, partially or fully," said Amol Joshi, founder of Plan Rupee Investment Services.

In February, the BSE benchmark Sensex declined six per cent, with major correction seen in last week of the month. So far in March, the benchmark index is already down 6.9 per cent.

Over the last one-month period, large-cap funds have given negative return of 12.8 per cent. The mid and small-cap funds have given negative returns of 11 per cent apiece.