Gold ETFs witness record Rs 1,961 cr inflow in Oct, 59% surge on MoM basis

Gold exchange-traded funds (ETFs) witnessed a record inflow of Rs 1,961 crore in October, marking a surge of 59 per cent on a month-on-month (MoM) basis, driven by expectation of increase in the yellow metal prices during the festive and marriage season.

This was over two-fold higher than Rs 841 crore inflow seen in October 2023, data with the Association of Mutual Funds in India (Amfi) showed.

The inflow helped in raising the assets under management (AUM) of gold funds by 12 per cent to Rs 44,545 crore by the end of October from Rs 39,823 crore in the preceding month.

"With the US Fed cutting interest rates by 75 bps (basis points) this year and dollar appreciating, how this is going to impact gold prices globally and investments therein need to be observed," Himanshu Srivastava, Associate Director - Manager Research at Morningstar Investment Research India, said.

As per the data, the Gold ETF category witnessed a net inflow of Rs 1,961 crore in October, which was sharply higher than the net inflow of Rs 1,233 crore in the preceding month.

This came following an inflow of Rs 1,611 crore in August, Rs 1,337 crore in July, Rs 726 crore in June, Rs 827 crore in May. Before that, the Gold ETF segment experienced an outflow of Rs 396 crore in April.

"Expectation of a surge in gold prices given the festive and marriage season demand in India could have also prompted investors to invest in Gold ETFs to capitalise on the opportunity. Additionally, over the years, Gold has gained prominence as an effective diversifier, prompting many investors to include Gold ETFs in their portfolios," he said.

Gold, with its superlative performance over the last few years, has garnered substantial investor interest and the consistent increase in folio numbers serves as a testament to its attractiveness. Since January 2020, this category has received a net inflow of Rs 24,153 crore, signifying enhanced investor interest in this segment.

Global uncertainty, geopolitical tension, global inflationary pressures and uncertainties around interest rates have reinforced gold's status as a safe haven and a hedge against inflation. These factors have consistently drawn investors towards gold over the past few years and continue to do so.

Moreover, the folio numbers in gold ETFs rose by over 2 lakh to 59.13 lakh from 57.11 lakh in the preceding month. This indicates a growing inclination among investors towards funds related to gold.

Gold ETFs, which aim to track the domestic physical gold price, are passive investment instruments that are based on gold prices and invest in gold bullion.

In short, Gold ETFs are units representing physical gold which may be in paper or dematerialised form. One gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity. They combine the flexibility of stock investments and the simplicity of gold investments.