Gold exchange-traded funds (ETFs) saw the highest inflows in the month of April since February 2020 after witnessing outflows in January and February of the current calendar year. Gold ETF received net inflows to the tune of ₹1100 crore in April after February 2020 when it received net inflow of ₹1,483 crore.
It started seeing some recovery in March 2022, after the first 2 months of outflows when it saw inflows worth ₹205 crore.
As per market experts, the worsening geopolitical situation between Russia and Ukraine, tightening monetary policy and volatility in equity markets has led to investors flee toward the yellow metal, a traditional safe-haven investment.
“Continuation of geopolitical tension due to the war between Russia and Ukraine, the surge in crude prices and concerns over the rise in inflation globally as well as domestically, has once again diverted investors' focus on the yellow metal, which draws its appeal as safe-haven during difficult environment and as a hedge against inflation,” said Himanshu Srivastava, associate director–manager research, Morningstar India in a note.
Gold prices declined in April giving investors a good opportunity to accumulate the yellow metal. Further, uncertainty in the equity markets also compelled investors to increase their exposure in gold.
In FY22, Gold ETFs folios more than tripled, surging over 220 percent from 13 lakh in March 2021 to 42 lakh in March 2022, as per AMFI data. In the past three months, Gold ETFs have given average returns of around 5 percent and one-year average returns of 6.4 percent.
“Gold functions as a strategic asset in an investor’s portfolio, given its ability to act as an effective diversifier, and alleviate losses during tough market conditions and economic downturns. This is where it draws its safe-haven appeal. During the challenging investment environment posed by Covid and the economic downturn, gold emerged as one of the better-performing asset classes, thus proving its effectiveness in investors’ portfolios. This aspect has not gone unnoticed by investors,” added Srivastava.
What is Gold ETF?
A Gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price. They are passive investment instruments that are based on gold prices and invest in gold bullion. In short, Gold ETFs are units representing physical gold which may be in paper or dematerialised form. One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity. Gold ETFs combine the flexibility of stock investment and the simplicity of gold investments.
Gold ETFs are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE) like a stock of any company. Gold ETFs trade on the cash segment of BSE & NSE, like any other company stock, and can be bought and sold continuously at market prices.
Buying Gold ETFs means you are purchasing gold in an electronic form. You can buy and sell gold ETFs just as you would trade in stocks. When you actually redeem Gold ETF, you don’t get physical gold but receive the cash equivalent. Trading of gold ETFs takes place through a dematerialised account (Demat) and a broker, which makes it an extremely convenient way of electronically investing in gold.
Because of its direct gold pricing, there is complete transparency on the holdings of a Gold ETF. Further due to its unique structure and creation mechanism, the ETFs have much lower expenses as compared to physical gold investments. Gold ETFs are represented by 99.5 percent pure physical gold bars.