Investors turn positive for Gold ETFs in Aug on positive global outlook

After witnessing net outflow in July, gold exchange-traded funds (ETFs) attracted Rs 24 crore in August on a positive global outlook, reflecting an improving sentiment towards the yellow metal.

The total inflow has reached Rs 3,070 crore in the asset class during the first eight months of the current year (January-August), data with the Association of Mutual Funds in India (Amfi) showed.

The inflow helped in pushing the number of folios in the category to 21.46 lakh in August from 19.13 lakh in the preceding month.

Investments into ETFs that track the yellow metal have been witnessing a steady uptick since August 2019.

However, the asset class witnessed net outflows of Rs 141 crore in November 2020, Rs 195 crore in February 2020 and Rs 61.5 crore in July 2021. After witnessing withdrawal in July, inflow remained positive last month, but at fairly low levels of Rs 23.92 crore, data showed. In comparison, the funds saw inflows of Rs 360 crore in June and Rs 288 crore in May.

"The overall positive global outlook despite the concerns around the pandemic led to an improving sentiment towards the yellow metal," Kavitha Krishnan, Senior Analyst Manager Research, Morningstar India, said.

Priti Rathi Gupta, the founder of LXME, said gold ETFs saw a significant conversion from outflows to inflows in August. As the prices of gold are returning to normal, people are again getting attracted to gold investments.

"Gold ETF serves as a great tool due to its high liquidity and lower investment requirement. Gold is considered as a hedge against inflation. Hence, the third wave seems to make investors adopt the traditional investment method in due anticipation," she said.

In addition, Gupta said equity markets are bullish and investors are sceptical about interest rate risk in the debt segment and they are seeking portfolio rebalancing, hence diverting money in the gold asset class.

However, the assets under management (AUM) of gold ETFs dropped to Rs 16,350 crore at the end of August from Rs 16,750 crore at July-end.

Gold ETFs are basically exchange-traded funds that invest in gold. They are traded on the stock market and make direct investments in gold.