Gold exchange-traded funds see Rs 200-cr outflow in Q1; asset base down 22%

Equity and ELSS saw an infusion of more than Rs 8,000 crore during the first quarter of 2017-18

Gold exchange traded funds (ETFs) continued losing steam as an investment class with investors pulling out more than Rs 200 crore from the instrument in the first quarter of the current fiscal, preferring equities over them.

The outflow meant assets under management (AUMs) of gold funds plunged by over 22 per cent during the quarter to Rs 5,174 crore, from Rs 6,645 crore in the year-ago period.

Trading in gold ETF segment has been tepid during the last four financial years. It has witnessed outflows of Rs 775 crore in 2016-17, Rs 903 crore in 2015-16, Rs 1,475 crore 2014-15 and Rs 2,293 crore in 2013-14.

On the other hand, equity and equity-linked saving scheme (ELSS) saw an infusion of more than Rs 8,000 crore during the first quarter of 2017-18. Stock markets have been on an upswing, touching new highs this year.

"With the rate tightening kicking off in US and a possible tightening in Europe by 2018 gold may be losing steam as an investment asset class. This is because, when debt as an asset delivers higher yields, gold, which has no underlying fundamentals, tends to underperform," said Vidya Bala, head of MF Research at Fundsindia.Com.

Gold ETFs are passive investment instruments that are based on price movements and invest in the metal.

"While demand from India has traditionally buttressed gold prices globally, sound rally in the Indian equity markets has meant that gold as an asset class has not been favoured. The global rate tightening and a strong Indian equity market may mean a sober outlook for gold," she added.

Further, demonetisation and lower gold price from a strengthening rupee has kept its prices low although imports of the metal shot up. Gold imports for half year ending June this year crossed the entire imports of 2016, Bala said.

According to the latest data available with Association of Mutual Funds in India (Amfi), a net sum of Rs 218 crore was pulled out in 14 gold-linked ETFs in three months ended June 30, 2017, as compared to Rs 228 crore in the same period last fiscal.

Withdrawal of Rs 66 crore was seen in April this year, Rs 71 crore in May and another Rs 81 crore in June.

Gold ETFs have been continuously seeing a withdrawal. It has last seen an inflow of Rs 20 crore in October. Prior to that, an inflow of Rs 5 crore was witnessed in such instruments in May 2013.