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Gold funds losing sheen? Investors pull out Rs 6.79 bn in 10 months of FY18

Press Trust of India / New Delhi 11 Feb 18 | 11:05 AM

Representative Image (Photo courtesy: Wikipedia)

Investors have pulled out Rs 1.1 billion from gold exchange-traded funds in January, taking the total outflow to Rs 6.79 billion in the first 10 months of the current fiscal, mainly on account of poor returns.

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The outflow meant assets under management (AUM) of gold funds plunged by over 15 per cent during the period under review to Rs 49.06 billion from Rs 56.70 billion in the year-ago period, latest update with the Association of Mutual Funds in India (Amfi) showed.

Trading in gold exchange-traded funds (ETFs) has been lukewarm in the previous four fiscals. It had witnessed an outflow of Rs 7.75 billion in 2016-17, Rs 9.03 billion in 2015-16, Rs 14.75 billion in 2014-15 and Rs 22.93 billion in 2013-14.

On the other hand, equity and equity-linked savings scheme (ELSS) saw an infusion of Rs 1.5 trillion during the first 10 months of 2017-18. This included an investment of over Rs 150 billion in the last month alone.

"Barring a couple of months, India has seen net negative flows in gold ETFs from February 2013. Even in terms of inflows, from triple-digit crore of inflows until 2012, it has now dwindled to low single-digit and almost nil in some months. Domestic gold's 3-year annualised returns at less than 3 per cent is lower than even savings bank rate today," said Vidya Bala, head of mutual fund research at Fundsindia.com.

"The sell-off in gold is in line with poor sentiments for gold worldwide. This comes on the back of stronger fundamentals in global economies, especially in the US. The expectation of faster rate hike in the US means that bonds yields will be expected to be more attractive than gold. Thus, the current sentiments do not bode well for gold as an asset class," she added.

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

According to Amfi data, a net sum of Rs 1.1 billion was pulled out from 14 gold-linked ETFs in January, as compared to Rs 350 million in the same month in 2016-17.

In December, a net sum of Rs 580 million was withdrawn from the instrument.

With the latest outflow, the total pullout has reached to Rs 6.79 billion in the April-January period of the ongoing fiscal.

Gold ETFs have been continuously seeing a withdrawal. The segment last saw an inflow of Rs 200 million in October 2016. Prior to that, an inflow of Rs 50 million was witnessed in such instruments in May 2013.

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