Employees carry mixed rate weighted gold bars in a storage tray in this arranged photograph (Photographer: Akos Stiller/Bloomberg)

Gold ETFs Lose Sheen As Investors Continue To Prefer Stocks

Gold exchange-traded funds continue to lose steam as investors pulled out Rs 280 crore during the April-November period of the current fiscal, preferring to invest in equities despite volatile markets.

In comparison, 14 gold-linked ETFs had witnessed a withdrawal of Rs 511 crore in the first eight months of 2017-18, the latest data from industry body Association of Mutual Funds in India showed. The outflow reduced the assets under management of gold funds by 11 percent to Rs 4,385 crore at the end of November.

Gold ETFs are passive investment instruments that are based on price movements and investments in the metal. Trading for the instrument, however, has been tepid during the past five financial years.

Industry experts said positive returns given by the equity market have resulted in Indian investors largely staying away from investing in gold ETFs. In fact, redemptions have been seen in the past five years.

Equity as an asset class has delivered tax-efficient returns, which has beaten inflation albeit with volatility in the short term.
Manish Mehta, Kotak Mahindra Asset Management Company National Head

Indian investors have traditionally preferred to hold gold in physical form, rather than ETFs which are actually a better form of holding from an investor’s perspective, he said. Ideally, investors should look to allocate 5-10 percent of the portfolio towards gold, which works as a portfolio hedge and helps reduce overall portfolio volatility, Mehta added.

On the other hand, equity and Equity-Linked Savings Scheme saw an infusion of over Rs 82,200 crore in the April-November period of the ongoing fiscal year despite volatile equity markets.

Overall, mutual fund schemes witnessed a net inflow of Rs 2.23 lakh crore in April-November period of the current fiscal.