Gold exchange-traded funds have been gaining traction from investors and have attracted Rs 731 crore in April amid increased risk-aversion as the coronavirus pandemic severely hit equity investments and the global economy.
The category has been one of the better performing asset classes over the past year. Since August 2019, Gold exchange-traded fund (ETF) segment has witnessed a net inflow of Rs 2,414 crore.
According to the latest data available with the Association of Mutual Funds in India (Amfi), a net sum of Rs 731 crore was pumped into gold-linked ETFs in April as compared to an outflow of Rs 195 crore in March.
The category had seen a staggering investment of Rs 1,483 crore in February and Rs 202 crore in January.
Prior to that, the safe-haven asset saw an infusion of Rs 27 crore in December and Rs 7.68 crore in November. However, it had seen a net pull-out of Rs 31.45 crore in October.
The high investment amount in April suggests that investors are still lining up to buy gold - something observed when equity markets look bearish. The lockdown and its resulting economic slowdown is contributing to investors' cautious behaviour, said Harsh Jain Co-founder and COO Groww.
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Echoing similar views, Himanshu Srivastava, senior research analyst (manager research), Morningstar Investment Adviser India said, With coronavirus pandemic hanging as a spectre on the global economy and markets worldwide, gold, with its safe-haven status, has emerged as a preferred investment destination among investors.
He, further, said that surge in gold prices also provided a profit-booking opportunity for investors, and they made good use of it intermittently. As a result, the gold ETF category witnessed net outflow of Rs 31 crore in October 2019 and a net outflow of Rs 195 core in March 2020.
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.
It's a safe-haven appeal, which has been on full display in 2019 and so far in 2020, as the yellow metal is witnessing one of its best rallies after 2011.
The inflows meant assets under management (AUM) of gold funds climbed to Rs 9,198 crore at the end of April from Rs 7,949 crore at the end of March.
Gold-backed ETFs are passive investment instruments that are based on price movements and investments in physical gold.
Going ahead, Srivastava said this segment may continue to gain traction from investors considering the threat posed by the coronavirus pandemic to the global economy and the markets.
Also, the global economic conditions would have a big say in the future gold prices and how investments in gold ETFs take place going forward, Jain added.
Overall, mutual fund houses witnessed an inflow of Rs 46,000 crore in April across all segments as compared to an outflow of Rs 2.13 lakh crore in March.
The inflow led to assets under management of the 44-player industry surging to Rs 24 lakh crore by the end of April from Rs 22.26 lakh crore at the end of March.