Informist, Tuesday, Jul 18, 2023
By Kshipra Petkar
MUMBAI – Net inflows into gold exchange traded funds have been moderating as investors have drifted towards better-performing asset classes such as equities and bonds. The net inflows into gold exchange traded funds fell to 703.9 mln rupees in June from 1.03 bln rupees in May and 1.25 bln rupees in April.
“We believe that given the continued rally in equity and relatively high interest rates, inflows into gold ETFs will be muted in the near term,” N.S. Venkatesh, chief executive, Association of Mutual Funds in India said.
The net inflows into equity funds were at a three-month high of 86.37 bln rupees in June, AMFI data showed.
“Gold is used as a hedge against equity markets. So when equity markets rise, gold prices come down. Given that there has been a rally in the markets, money is flowing into equity funds and hence inflows into gold ETFs have come down,” Venkatesh said.
High interest rates also lead to muted demand from conservative investors who shift money from gold to bonds and debt market funds.
“Right now we are seeing that investors feel more confident about the risk capital in equity and in this scenario the demand for diversification is less,” Vikram Dhawan, head commodities and fund manager, Nippon India Mutual Fund said.
Gold exchange traded fund units track domestic physical gold price.
“Gold prices came off highs towards the second half of May, thereby providing some buying opportunity, particularly after a sharp rally witnessed since March this year,” Melvyn Santarita, analyst – manager research, Morningstar India said in a report.
With gold prices still trading at high levels, some investors would have chosen to book profits or take a risk on-approach with a view that central banks may not hike rates going ahead, Santarita said. Currently, gold is trading at 59,305 rupees per 10 gm.
“The awareness around gold exchange traded funds is increasing in customers, but we are unable to convert the cash market and traction is not coming that way,” Abhishek Bisen, head-fixed income, Kotak Mutual Fund said.
The assets under management of gold ETFs fell 3.4% on month to 223.39 bln rupees in June, AMFI data showed. Currently, there are 13 gold exchange traded funds with the total number of folios at 4.75 mln as on Jun 30.
Fund managers believe that a multi-asset allocation strategy can help increase investor inflows in commodity-based funds.
Over the long term, investors must stick to their asset allocation which has a mix of equity, debt and other asset classes including gold, Venkatesh said.
A multi-asset allocation fund is a hybrid fund that must invest a minimum of 10% in at least three asset classes. These funds typically have a combination of equity, debt, and one more asset class like gold and real estate among others.
“Investors do not have the patience to stay invested in one particular theme. So if we have multi commodity asset fund strategy, we can keep grabbling with the expectation, when we believe gold is going to do well than equity,” Bisen said.
Going forward, fund managers expect a high double-digit growth from the multi-asset allocator funds. The top five multi-asset allocation funds and their returns are as follows according to data by Value Research:
Edited by Vidhi Verma
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