Gold Exchange Traded Funds (ETFs) saw a net outflow of Rs 457 crore in July as investors shifted their money into other asset classes as part of their portfolio rebalancing strategy.
That was compared to a net inflow of Rs 135 crore in June, according to data from the Association of Mutual Funds in India (Amfi).
Kavitha Krishnan, Senior Analyst – Manager Research at Morningstar India, said large outflows appear to have risen due to investors’ expectations of a cycle of rising interest rates leading to lower gold prices, thus affecting net flows to gold ETFs.
Additionally, a falling rupee is another factor that likely impacted gold demand and supply dynamics. This trend was also seen globally, with gold ETFs posting large outflows due to falling gold prices, she added.
“This outflow could be directed at diverting money from gold to other asset classes as part of a portfolio rebalancing strategy,” said Priti Rathi Gupta, founder of LXME.
The exit brought the category’s assets under management down to Rs 20,038 crore last month from Rs 20,249 crore in June.
However, the category saw a slight increase in the number of folios from over 37,500 to 46.43 lakh during the reporting period.
That suggests investors likely continue to invest in gold ETFs as a way to diversify their portfolio and hold the financial instruments as a hedge against market risk, Krishnan said.
So far in the current financial year (to July) 2022-23, the segment has attracted Rs 982 crore.
Gold ETFs, which aim to track the price of physical gold in the domestic market, are passive investment instruments based on gold prices and investing in gold bullion.
In short, gold ETFs are units representing physical gold which can be in paper or dematerialized form. One ETF unit of gold is equivalent to 1 gram of gold and is backed by very high purity physical gold. They combine the flexibility of equity investments with the simplicity of gold investments.