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Gold ETFs lose sheen on weak metal prices, better equity returns

Author: Debasis Mohapatra/Thursday, March 22, 2018/Categories: Gold

Gold ETFs lose sheen on weak metal prices, better equity returns

Mumbai, March 22: Gold ETFs are slowly losing its sheen as investors are pulling out money from these instruments due to restricted uptrend in gold prices, impacting the returns adversely for investors.

Analysts are also of the opinion that launch of sovereign gold bond schemes by the central government and sound performance of equities are some of the other reasons for which investors are redeeming their investments from ETFs.

According to data released by Association of Mutual Funds in India (AMFI), total assets under management (AUM) under gold ETFs fell by Rs 773 crore in the April- February period of the current financial year.

In February alone, investors pulled out Rs 94 crore from these instruments. The net amount of redemption in January stood at Rs 110 crore.  
In the first nine months of 2017-18 ending December, average AUM of gold ETFs dipped to Rs 4,855 crore from Rs 5,519 crore managed in the corresponding period of previous fiscal.

Market experts opined that weak gold price is one of the major reasons behind higher redemption seen in gold ETFs.

“For any ETF to provide good return, the underlying asset should perform well. If you see the gold prices in the recent years, it has not appreciated much. So, in return, gold ETFs have not performed well for which investors are pulling out money from these instruments,” Melvin Joseph, Founder of Mumbai-based advisory firm, Finvin Financial Planners told The Finapolis.

With rupee remaining stable in the last 2-3 years, gold has not seen much uptrend, he added. Notably, gold prices have remained mostly range bound in the last 1 year with prices hovering around Rs 30,000 per 10 gram.

Apart from subdued gold prices, sound performance of equity market also influenced investors’ preferences.  

“Interest for buying gold among Indian youth is slowly waning.  Also, equity is slowly emerging as an asset class of choice for middle class people. With equity market performing well, there is a gradual shift in investors’ preferences towards financial assets,” Joseph said.

Launch of sovereign bond schemes by the central government is one of the other factors behind subdued interest towards gold ETFs, he added.

Notably, sovereign gold bond schemes have been launched by the government with an aim to reduce the consumption of physical gold in India through popularization of holding gold in paper form.      

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