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Gold ETFs see Rs200 crore outflow in Q1 as asset base slumps 22%

LiveMint logoLiveMint 11-07-2017 PTI

New Delhi: Gold exchange-traded funds (ETFs) continued losing steam as an investment class with investors pulling out more than Rs200 crore from the instrument in the first quarter of 2017-18, preferring equities over them.

The outflow meant assets under management (AUM) of gold funds plunged by over 22% during the quarter under review to Rs5,174 crore, from Rs6,645 crore in the year-ago period.

Trading in gold ETF segment has been tepid during the last four financial years. It has witnessed outflows of Rs775 crore in 2016-17, Rs903 crore in 2015-16, Rs1,475 crore 2014-15 and Rs2,293 crore in 2013-14.

On the other hand, equity and equity-linked saving schemes (ELSS) saw an infusion of more than Rs8,000 crore during the first quarter of 2017-18.

Stock markets have been on an upswing, touching new highs in 2017.

“With the rate tightening kicking off in US and a possible tightening in Europe by 2018 gold may be losing steam as an investment asset class. This is because, when debt as an asset delivers higher yields, gold, which has no underlying fundamentals, tends to underperform,” said Vidya Bala, head of mutual fund research at Fundsindia.com.

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

“While demand from India has traditionally buttressed gold prices globally, sound rally in the Indian equity markets has meant that gold as an asset class has not been favoured. The global rate tightening and a strong Indian equity market may mean a sober outlook for gold,” Bala added.

Further, demonetisation and lower gold price from a strengthening rupee has kept its prices low although imports of the metal shot up. Gold imports for half year ending June crossed the entire imports of 2016, Bala said.

According to the latest data available with the Association of Mutual Funds in India (Amfi), a net sum of Rs218 crore was pulled out in 14 gold-linked ETFs in three months ended 30 June 2017, as compared to Rs228 crore in the same period in 2016-17. Withdrawal of Rs66 crore was seen in April, Rs71 crore in May and another Rs81 crore in June.

Gold ETFs have been continuously seeing a withdrawal. The segment last saw an inflow of Rs20 crore in October 2016. Prior to that, an inflow of Rs5 crore was witnessed in such instruments in May 2013.

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