Gold ETF Inflows Plummet Amid Record Prices
Gold prices have surged to unprecedented heights, yet the inflow of funds into Gold Exchange-Traded Funds (ETFs) has significantly declined. In February, inflows dropped by 47.22%, totaling Rs 1,979 crore, compared to Rs 3,751 crore in January. Despite this downturn, year-on-year inflows have increased by an impressive 99%, rising from Rs 997 crore in February 2024. This trend reflects a shifting investment landscape, as profit-taking and attractive equity market opportunities alter investor behavior.
Profit-Taking and Market Shifts
The recent decline in Gold ETF inflows can largely be attributed to profit-taking following a substantial rise in gold prices. Nehal Meshram, Senior Analyst at Morningstar Investment Research India, noted that many investors opted to lock in their gains after gold reached an all-time high last month. Additionally, corrections in the equity markets have created appealing buying opportunities, prompting some investors to pivot their focus from gold ETFs to equities.
Despite the slowdown in inflows, Gold ETFs managed to deliver an average return of 3.34% in February. The UTI Gold ETF emerged as the top performer, yielding a return of 3.70%. Other notable ETFs, including Kotak Gold ETF, Zerodha Gold ETF, and DSP Gold ETF, provided returns of 3.54%. Invesco India Gold ETF and Tata Gold ETF followed with returns of 3.08% and 2.48%, respectively.
Economic Factors Impacting Gold Investment
The expectation of potential interest rate cuts by global central banks has also influenced investor sentiment towards gold. As the urgency for safe-haven investments diminishes, many investors are reassessing their portfolios. However, gold remains a crucial diversifier, particularly in light of ongoing global economic uncertainties. Analysts suggest that gold’s role as a hedge against market instability will continue to attract interest in the coming months.
Growth in Assets Under Management
Despite the decline in net inflows, the assets under management (AUM) for Gold ETFs experienced a notable increase. AUM grew by 7%, reaching Rs 55,677 crore in February, up from Rs 51,839 crore in January. On a yearly basis, AUM surged nearly 95%, rising from Rs 28,529 crore in February 2024. Ajay Garg, CEO of SMC Global Securities, highlighted that while net inflows have decreased, the average AUM grew by 15% to Rs 55,001.75 crore, driven by the recent rally in gold prices.
In February, only one new Gold ETF scheme was launched, with the Union Gold ETF collecting Rs 11 crore, according to the latest data from the Association of Mutual Funds in India (AMFI). This indicates a cautious approach among investors as they navigate the current market dynamics.
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