Gold ETFs see Rs 150 cr outflow in Q1; asset base slumps 12%

Gold exchange-traded funds (ETFs) continued to lose steam with investors pulling out nearly Rs 150 crore from the instrument in the April-June quarter, favouring equities.

The assets under management (AUM) of gold funds plunged 12 per cent to Rs 4,567 crore at the end of June this year, from Rs 5,174 crore a year ago.

Trading in gold ETF segment has been tepid during the last five financial years. It saw outflow of Rs 835 crore in 2017-18; Rs 775 crore in 2016-17; Rs 903 crore in 2015-16; Rs 1,475 crore in 2014-15 and Rs 2,293 crore in 2013-14.

"Gold ETFs continue to witness outflows since the last 5 years. After the multi-year rise in gold prices since 2005, we saw gold prices make new highs in 2011-12 and then corrected sharply. Since then they have traded in a range of 1,100-1,400 USD/oz," Morningstar Investment Adviser India Director Manager Research Kaustubh Belapurkar said.

"At the same time equity markets have moved up sharply since 2014 which switched investor focus towards equities as an asset class," he said.

On the other hand, equity schemes saw an infusion of Rs 33,000 crore during the first quarter (April-June) of the current financial year.

According to the latest data available with the Association of Mutual Funds in India (Amfi), a net sum of Rs 146 crore was pulled out in 14 gold-linked ETFs in the June quarter, as compared to Rs 218 crore in the year-ago period.

Withdrawal of Rs 54 crore was seen in April, Rs 38 crore in May and another Rs 54 crore in June.

Gold ETFs -- passive investment instruments that are based on price movements and invest in the metal -- have been continuously seeing a withdrawal. The segment last saw an inflow of Rs 20 crore in October 2016. Prior to that, an inflow of Rs 5 crore was witnessed in such instruments in May 2013.

On the outlook for the instrument, senior fund manager - alternative investments at Quantum Asset Management, Chirag Mehta said that the movement in gold rates will depend on the global trade war, especially between the US and China.

"The current dispute between the US and China has been moving towards an all-out trade war," he added.

However, Belapurkar said: "We still think gold offers a good portfolio hedge for investors and they should look to allocate 5-10 per cent of their portfolio in gold to reduce overall portfolio volatility.