A number of investors has shifted from gold Exchange Traded Funds (ETFs) to sovereign gold bonds, silver ETFs and equity schemes, reported Economic Times. The change has occurred at a time when gold prices have been trading firm.
International gold prices jumped by 6. 6 percent to $1,921 per ounce on year-to-date basis till Tuesday. Gold ETFs saw an outflow of ₹700 crore in the first two months of 2022 after five months of consecutive inflows at ₹1,769 crore according to the Association of Mutual Funds in India (AMFI) data, writes Economic Times.
Distributors give a number of reasons such as the Russia-Ukraine conflict, inflation and rising interest rates for this phenomenon. “Some investors in gold ETFs are shifting to sovereign gold bonds,” said Rupesh Bhansali, head-mutual funds at GEPL Capital.
The structure of gold funds is advantageous since they mature at a price which is close to the spot market price of gold, says Bhansali. This gives gold bonds an edge over gold ETFs.
They also earn a return similar to a bank savings account. According to another distributor, who did not want to be identified, investors who had entered the gold ETFs near the peak of August 2020 ($2,032 per ounce) were stuck as gold prices declined in subsequent months while equities rose. Gold prices rose again in January and February 2022, which offered an exit opportunity to these investors.
He added that the assets under management (AUM) of gold funds rose 100 percent in the past two years to ₹18,272 crore. Some amount of gold investment is also moving to silver ETF, which acts as industrial metal, and equities as investors pin their hopes to gain from the recovery in capital expenditure cycle and the subsequent earnings growth of companies.
For the uninitiated, Gold ETFs (exchange-traded funds) are passively managed funds and a convenient form of investment as compared to physical gold. One unit of gold ETF equals 1 gram of gold and the gold prices are reflected without any additional fees. These are traded on exchanges in real-time and unlike physical gold, prices of gold ETFs do not vary statewise.