Gold ETFs attract Rs 3,500 cr in first half of 2020 amid safe-haven buying

Gold exchange traded funds saw hefty net inflows of over Rs 3,500 crore in the first six months of this year as investors continued to hedge their exposure to riskier assets amid the COVID-19 crisis.

In comparison, investors had pulled out Rs 160 crore from this asset class in January-June 2019, according to the latest data available with the Association of Mutual Funds in India (Amfi).

The category has been one of the better-performing ones since last year. Since August 2019, gold exchange traded funds (ETFs) have received net inflows of Rs 3,723 crore.

As per the data, a net sum of Rs 3,530 crore was pumped into gold-linked ETFs in the six months ended June 30 this year.

Month-wise, investors put in a net Rs 202 crore in January, Rs 1,483 crore in February, but withdrew Rs 195 crore in March on profit booking.

Inflows resumed in April at Rs 731 crore , followed by Rs 815 crore in May and Rs 494 crore in June.

"As the surge in coronavirus cases have cast a doubt on the swift recovery hopes, investors continue to hedge their exposure to riskier assets by investing a portion of their assets in gold, as it is seen as a safe haven in times of uncertainty," said Himanshu Srivastava, senior research analyst (manager research), Morningstar Investment Adviser India.

Harsh Jain, co-founder and COO of Groww, said many investors are preferring to park their money in gold in light of the volatile markets.

Srivastava said 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 has 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 surged more than two-fold to Rs 10,857 crore at the end of June 2020, from Rs 4,930 crore at the end of June 2019.

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 markets.