Investors shy away from gold ETFs

Huge closure of accounts, net outflow of Rs 2,300 cr recorded in FY14

Gold exchange-traded funds (ETFs), once a popular investment vehicle among retail investors, seem to be losing appeal, going by the large-scale closure of folios and the continuous net outflows. In the past year, about a fifth of the accounts set up for investments in this product have seen closures.

In the past, a slew of investors had made investments in gold ETFs, anticipating gold prices would soar to new highs. In May 2013, the number of gold ETF-specific folios had exceeded 600,000, while assets under management had breached the Rs 10,000-crore mark.

According to the latest statistics from the Association of Mutual Funds of India, gold ETFs have lost 18 per cent of their investor base since May. In recent months, these products have seen continuous net outflows, owing to redemptions and lack of new sales.

Many believe gold ETFs have gone out of favour due to the poor outlook on the precious metal. Also, parity in domestic and international prices following restrictions imposed by the government to curb gold imports made many wary of investing in ETFs. Fund houses, too, had stopped pushing the product, sources said.

During 2013-14, gold schemes recorded net outflows of Rs 2,293 crore, against net inflows of Rs 1,414 crore in 2012-13. During this period, the assets under management of gold ETFs declined about Rs 2,000 crore.

“As the global economy is recovering, the demand for gold is on the decline. India, in particular, saw banning of gold imports, which impacted ETFs. There isn’t much fresh buying, but redemptions have gone up, which is leading to erosion of assets in the category,” said Lakshmi Iyer, chief investment officer (debt), Kotak Mutual Fund.

  Gold exchange-traded funds (ETFs), once a popular investment vehicle among retail investors, seem to be losing appeal, going by the large-scale closure of folios and the continuous net outflows. In the past year, about a fifth of the accounts set up for investments in this product have seen closures.

In the past, a slew of investors had made investments in gold ETFs, anticipating gold prices would soar to new highs. In May 2013, the number of gold ETF-specific folios had exceeded 600,000, while assets under management had breached the Rs 10,000-crore mark.

According to the latest statistics from the Association of Mutual Funds of India, gold ETFs have lost 18 per cent of their investor base since May. In recent months, these products have seen continuous net outflows, owing to redemptions and lack of new sales.

Many believe gold ETFs have gone out of favour due to the poor outlook on the precious metal. Also, parity in domestic and international prices following restrictions imposed by the government to curb gold imports made many wary of investing in ETFs. Fund houses, too, had stopped pushing the product, sources said.

During 2013-14, gold schemes recorded net outflows of Rs 2,293 crore, against net inflows of Rs 1,414 crore in 2012-13. During this period, the assets under management of gold ETFs declined about Rs 2,000 crore.

“As the global economy is recovering, the demand for gold is on the decline. India, in particular, saw banning of gold imports, which impacted ETFs. There isn’t much fresh buying, but redemptions have gone up, which is leading to erosion of assets in the category,” said Lakshmi Iyer, chief investment officer (debt), Kotak Mutual Fund.