Gold ETFs attract Rs 303 crore in Oct on festive season demand

Gold exchange-traded funds (ETFs) continue to attract investor attention as they garnered net assets worth Rs 303 crore in October due to festive season demand. This was, however, lower than the net inflow of Rs 446 crore seen in September. Before this, the segment saw a net inflow of Rs 24 crore in the previous month, data with Association of Mutual Funds in India (Amfi) showed.

“Gold ETFs saw a faithful inflow during October too of about Rs 303 crore. As expected, the festivities kept the asset class in demand. Gold sale level this Dhanteras at 50 tonnes was almost 20 tonnes more than the 2019 Dhanteras,” Priti Rathi Gupta, founder, LXME, said.

Investors might have chosen to buy physical gold given October is a festive month, Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, said.

“The lower quantum of net inflow in October compared to the previous month could be attributed to the surge in gold prices in October that could have held investors back from allocating higher amounts in Gold ETFs,” he said.

Another factor for lower inflow could be investors focus on equity markets, which have been trading at all-time high levels.

“Despite these factors, the net inflow in October is reasonable nonetheless and does point towards investors liking for yellow metal in their investment portfolio,” he added.

With this, the Gold ETF category has received a net inflow of Rs 3,818 crore so far this year. The segment witnessed just one month of net outflow, which was in July 2021 of around Rs 61.5 crore.

The latest inflow helped in pushing the number of folios in the category by eight per cent to 26.6 lakh in October from 24.6 lakh in the preceding month. So far this year, the folio numbers have surged by almost 200 per cent.

The number indicates that gold has made inroads into the investor’s portfolio as part of their asset allocation requirement like never before.

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.

Srivastava said that 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.

“During the challenging investment environment in the recent past, gold emerged as one of the better performing asset classes, thus proving its effectiveness in investors’ portfolio,” he said.

This aspect has not gone unnoticed by investors, which is evident from rather consistent net inflow into the Gold ETF category, he added.

The assets under management (AUM) of gold ETFs surged to Rs 17,320 crore at the end of October from Rs 16,337 crore at September-end.