Gold ETF inflows slump as prices rise

Inflow in gold exchange traded funds (ETFs) plunged by 90% to 459 crore in 2022 due to rising prices of yellow metal, increasing interest rate structure coupled with inflationary pressures.

This was way lower than an inflow of 4,814 crore seen in the segment during 2021 and 6,657 crore in 2020, data with Association of Mutual Funds in India (Amfi) showed.

However, the asset base of gold ETFs and investors’ account or folio numbers increased in 2022 from the preceding year.

“A rising price (of gold) probably puts some pressure on investors, with a lot of people holding back their investments while they wait for a correction. A rising interest rate structure coupled with inflationary pressures that the economy has been witnessing for most part of this year has also posed challenges,” Kavitha Krishnan, Senior Analyst Manager Research, Morningstar India, said.

On the domestic front, investors are preferring to invest in equities over other asset classes with the segment attracting an investment of 1.6 trillion in 2022, way higher than 96,700 crore seen in the preceding year.

Also, SIP’s flows too have witnessed a significant rise with investors likely redeeming out of other asset classes in favour of equity funds.

Globally, uncertainties around the Russia-Ukraine war and a hawkish stance by the US Federal Reserve among other factors have led to record outflows from gold ETFs, Krishnan added.

Despite this, gold ETFs continued to see inflow, although the quantum of investment in the category declined last year, compared to preceding two years.

The positive inflow helped in pushing assets under management of gold funds by over 16% to 21,455 crore at the end of December 2022 from 18,405 crore a year ago.

Gold, with its superlative performance over the last few years, has attracted significant investor interest and the consistent surge in their folio numbers is a testimony of the same.

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