Gold ETFs attract Rs 1,328 cr in Jun qtr; inflow to continue: Experts

Gold exchange-traded funds (ETFs) attracted Rs 1,328 crore from investors in the quarter ended June 2021 and experts believe that inflows will continue in the coming months of the fiscal.

In comparison, inflow in the category was much higher at Rs 2,040 crore in the same quarter last year, according to data available with Association of Mutual Funds in India (Amfi).

Quantum Mutual Fund Sr Fund Manager, Alternative Investment, Chirag Mehta said that inflows in gold ETFs were significant in the June quarter last year on account of significant economic uncertainty due to the COVID-19 pandemic. This year given the optimism surrounding economic recovery, inflows have slowed a bit.

"The higher net inflows in gold ETFs last year could be attributed to the onset of the pandemic which created massive uncertainties about asset prices and inflation, driving many investors to turn to gold ETFs," Arshad Fahoum, Chief Product Officer at Market Pulse, said.

Making similar views, Divam Sharma, Co-founder at Green Portfolio, said the first half of 2020-21 saw high inflows into gold ETFs as there was uncertainty with Covid 1.0 and investors wanted to diversify cash to this asset class.

"With business activities resuming and stock markets continuing to outperform, allocations shifted from gold. Bitcoin has also been a spoilsport for hold prices and hence allocations to the asset class faced pressure," he added.

During the first three months of 2021, gold ETFs saw net inflows to the tune of Rs 1,779 crore and in the subsequent three months, such instruments witnessed net infusion of Rs 1,328 crore, Amfi data showed.

Despite slowdown in inflow, the assets under management (AUM) of gold ETFs

rose sharply to Rs 16,225 crore at the end of June 2021 from Rs 10,857 crore in June-end 2020.

At the same time, investors account or folios in gold ETFs surged three times to 18.32 lakh in the period under review from 6.31 lakh in June 2020.

Investors are steadily acknowledging the need for adding gold as a diversifier in their portfolio and this is evident from the fact that the category has received a net inflow of Rs 9,737 crore from January 2020 till June 2021.

Gold functions as a strategic asset in an investor's portfolio, given its ability to act as an effective diversifier, and alleviate losses during tough market conditions and economic downturns, Himanshu Srivastava, Associate Director Manager Research, Morningstar India, said.

Going forward, Market Pulse's Fahoum expect the ongoing fiscal will attract more inflows in gold ETFs, especially if gold prices continue to show strength in the short-term.

In addition, with the key global indices at all-time highs, any concerns around the pandemic or falling bond yields coupled with higher inflation woes could induce caution in the investor population, which could further lend strength to gold prices and the eventual inflows in gold ETFs, he added.

Quantum Mutual Fund's Mehta too expect inflows in gold ETFs to continue as investors have realised the importance of gold in one's portfolio and as they still remain under-allocated from a portfolio perspective.

"Gold ETFs will continue to remain a vehicle of choice due to its price efficiency and liquidity.Gold is considered as an asset that's useful during emergencies and last years lock downs dried up much of the retail liquidity at that time," he added.

Gold ETFs are basically exchange-traded funds that invest in gold. They are traded on the stock market and make direct investments in gold.