Investors poured Rs 700 crore in Gold ETFs in June. Is it a good investment?

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Gold ETFs saw an inflow for the second consecutive month in June of Rs 726.16 crore, according to the monthly data released by AMFI. The category saw an inflow of Rs 827.43 crore in May and an outflow of Rs 395.69 crore in April.

In the first six months of 2024, the category received a total inflow of Rs 3,185 crore. In FY25 so far, the category witnessed an inflow of Rs 1,157.91 crore.

What is attracting investors to Gold ETFs? What helped in continuous inflows?

“The enduring global inflation, which remains above central banks’ comfort levels, and the persistent uncertainty surrounding interest rate cuts have bolstered gold’s appeal as a safe haven and as a hedge against inflation, thereby attracting more investors. Also, over the years, Gold has gained prominence as an effective diversifier, prompting many investors to include Gold ETFs in their portfolios. Gold prices also saw some slight correction in June which spurred buying from investors,” said Melvyn Santarita, Analyst – Manager Research, Morningstar Investment Research India.

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Gold ETFs had the total assets under management (AUM) of Rs 34,355 crore as on June 2024, the lowest among other scheme categories (includes ETFs and index funds). The category observed the highest growth on a month on month basis of around 8% from an AUM of Rs 31,689 crore as on May 2024. On a monthly basis, the AUM of category increased by Rs 2,666 crore.

In the first half of 2024, the assets under management of Gold ETF surged by around 24% from Rs 27,778 crore in January 2024 to Rs 34,355 crore in June 2024. The passive funds saw the highest month-on-month increase with assets under management of Rs 64,554 crore during the month.“Within the category, the highest month-on-month growth was observed in Gold ETFs, which surged 8.4% from May 2024, reaching Rs 34,356 crore as yellow metal prices advanced. Gold ETFs have seen the highest growth over the past year, up 54%,” according to a report by AMFI.

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Around 12 Gold ETFs have completed one year of existence in the industry and offered an average return of 22.95% in the same time period. LIC MF Gold ETF offered the highest return of around 23.83% in the last one year, followed by UTI Gold ETF which gave 23.72% return.

Nippon India ETF Gold BeES, the oldest and the largest Gold ETF, offered 22.60% return in the last one year. The scheme manages assets of Rs 11,144 crore. SBI Gold ETF offered the lowest return of around 22.27% in the said time period.

In the first six months of 2024, Gold ETF offered 12.78% average return with highest return offered by HDFC Gold ETF which gave 13.16%.

What factors led to this performance in the last one year?

“In INR terms, gold has done fairly well over the last year but dwarfs in comparison to how equities have fared. Given this backdrop, flows in the Gold ETF category has been somewhat patchy relative to the equity asset class. Some investors could be choosing to opt for a risk-on approach to investing with the anticipation of a reversal in rate cycle going ahead,” commented the analyst.

According to AMFI, Gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price. They are passive investment instruments that are based on gold prices and invest in gold bullion. In short, Gold ETFs are units representing physical gold which may be in paper or dematerialised form. One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity. Gold ETFs combine the flexibility of stock investment and the simplicity of gold investments.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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