Gold ETFs log Rs 457 crore outflow in July as investors rebalance portfolio

Gold Exchange Traded Funds (ETFs) witnessed a net outflow of Rs 457 crore in July as investors parked their money in other asset classes as part of their portfolio rebalancing strategy.

This was in comparison to a net inflow of Rs 135 crore in June, data with Association of Mutual Funds in India (Amfi) showed.

Kavitha Krishnan, Senior Analyst Manager Research at Morningstar India, said that significant outflows seem to have risen out of investors' expectations of a rising interest rate cycle leading to a fall in gold prices, thus impacting the net flows into the gold ETFs.

Also, a falling rupee is another factor that has likely impacted the demand and supply dynamics of gold. This trend has been witnessed globally too, with gold ETF's posting significant outflows on the back of lower gold prices, she added.

"This outflow could be directed toward money being diverted from gold to other asset classes as a part of a portfolio rebalancing strategy," Priti Rathi Gupta, Founder of LXME, said.

The outflow has pulled down the asset under management of the category to Rs 20,038 crore last month from Rs 20,249 crore in June.

However, the category saw a slight increase in the number of folios by over 37,500 to 46.43 lakh during the period under review.

This suggests that investors are likely continuing to invest in gold ETF's as a means to diversify their portfolio and hold the financial instruments a hedge against market risks, Krishnan said.

So far in the current fiscal (till July) 2022-23, the segment attracted Rs 982 crore.

Gold ETF, which aims to track the domestic physical gold price, 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. They combine the flexibility of stock investment and the simplicity of gold investments.