Gold ETFs rebuffed in Feb on metal price surge

Sales plunge to the lowest in current financial year.

Investors stayed away from gold exchange-traded funds (ETFs) as prices of the yellow metal rallied sharply in February. Overall sales of the product plunged to the lowest in the current financial year, while net inflows hit a nine-month low.

Ten gold ETF schemes are available in the domestic mutual fund sector, which saw a net inflow of a mere Rs 25 crore in February against Rs 125 crore in the previous month. Overall sales were Rs 42 crore, against Rs 167 crore in January.

During this period, the price of standard gold in the domestic market rose a little over five per cent, from Rs 19,945 per 10g to as high as Rs 20,960 per 10g. On the international front, the price rise was steeper, at over six per cent, touching $1,431 per ounce compared with $1,349 per ounce at the end of January.

Ritesh Jain, head of income funds at Canara Robeco Mutual Fund, said, “During the month, the yellow metal rallied big time and gold ETFs were trading at an all-time high net asset value (NAV), which prompted investors to book profits. In the short term, gold is vulnerable to profit booking.”

According to Rajan Mehta, executive director of Benchmark Mutual Fund, which launched the first-ever gold ETFs in the domestic market: “When gold is at higher levels, investors tend not to buy in India. This happened in February, too. Second, there is a possibility that some inflows which could come to the gold ETF category got diverted to the equity segment.”

Equity schemes had witnessed a record inflow, since the entry load ban from August 2009, of Rs 2,800 crore in February. Navneet Munnot, chief investment officer at SBI Mutual Fund, said: “Investors found better attractive avenues like fixed income and equity schemes.”

So far in the current financial year, gold ETFs have seen a net inflow of Rs 1,602 crore, more than double what it witnessed during the same period in 2009-10. More, the net inflows seen in gold ETFs till date are higher than any other asset category, except in money and liquid market schemes.

It was in August that inflows in gold ETFs peaked at Rs 514 crore, before seeing a downtrend in inflows. Industry experts say a dip in inflows in the gold category is part of the normal cycle. Going forward, they add, gold ETFs are going to see good fund flows, as more people start taking gold as an investment tool.