Gold is seen as a go-to asset class during turbulent times. However, investors seemed to have missed the bus. Net inflows into gold exchange-traded funds (ETFs) plunged to a four-year low of ₹653 crore in 2022-23 (FY23), even as gold emerged as the top-performing asset class, reported Business Standard.
Gold ETFs delivered returns of 14 per cent last financial year. By comparison, the benchmark S&P BSE Sensex and the National Stock Exchange Nifty delivered near-zero returns.
Investment advisors say that investor interest in any asset class is driven by past returns. Since equities delivered the highest returns in 2020-21 (FY21) and 2021-22, investors continued to flock to that asset class in FY23.
Gold ETFs had raked in close to ₹7,000 crore in FY21 as they delivered over 37 per cent returns in 2019-20. However, FY21 proved to be a lacklustre year for gold and a blockbuster one for equities, with the Sensex climbing 68 per cent.
“Money flows into the best-performing asset class. Interest in gold dried up after its poor performance FY21,” says Nitesh G Buddhadev, founder, Nimit Consultancy.
Even as gold’s performance has improved in recent months, experts believe that investors might be waiting on the sidelines to enter at better prices.
“Investors may be waiting for some correction in prices. Also, some flows could have shifted to debt funds, given the rise in yields,” says Dev Ashish, founder, Stable Investor.
Even as returns improve, gold ETFs face a new challenge in the form of loss of indexation benefit. Changes brought in tax laws will lead to a higher tax outgo for gold ETF investors. Experts see the development as disrupting flows into the product.
In India, gold prices remained at about ~52,000 per 10 gram in the first eight months of FY23 before picking up to ~60,000 by the end of the year. The surge in prices — underpinned by a depreciation of the rupee and an uptick in global prices — ensured double-digit returns for gold ETF investors. The ETFs delivered 12-13 per cent returns during the period.