Gold ETF entry falls 90% in 2022; asset base, investor account growth

Gold ETF inflow plummeted by 90 per cent to Rs 459 crore in 2022 due to rising yellow metal prices, rising interest rate structure coupled with inflationary pressures.

This was much lower than an inflow of Rs 4,814 crore seen in the segment during 2021 and Rs 6,657 crore in 2020, data from the Association of Mutual Funds in India (Amfi) showed.

However, the asset base of gold ETFs and investor account or folio numbers increased in 2022 compared to the previous year.

“A rising (gold) price is likely to put some pressure on investors, with many people holding onto their investments while they wait for a correction. A rising interest rate structure coupled with inflationary pressures that the economy has been seeing for most of This year has also posed challenges,” said Kavitha Krishnan, a senior analyst and research manager at Morningstar India.

On the domestic front, investors prefer investing in shares over other asset classes and the segment attracts investment of Rs 1.6 lakh crore in 2022, well above the Rs 96,700 crore seen the previous year.

Additionally, SIP flows have also witnessed a significant increase with investors likely redeeming other asset classes in favor of equity funds.

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Globally, uncertainties surrounding the Russia-Ukraine war and a hawkish stance by the US Federal Reserve, among other factors, have led to record outflows from gold ETFs, Krishnan added.

Despite this, gold ETFs continued to see inflows, although the amount of investment in the category declined last year, compared to the previous two years.

The positive inflow helped boost gold fund assets under management by more than 16 per cent to Rs 21,455 crore at the end of December 2022 from Rs 18,405 crore a year ago.

Gold, with its superlative performance in recent years, has attracted great interest from investors and the steady rise in its folio numbers is a testament to the same.

During the year, the number of folios in gold ETFs increased by 14.29 lakhs to 46.28 lakhs in December 2022 from 32.09 lakhs in December 2021. This shows that investors have been more inclined towards related funds. with the gold.

In the future, the segment may receive more income in case there is volatility in the market due to the change in the interest rate regime around the world, said Swapnil Bhaskar, Head of Strategy, Niyo (neo-bank for millennials). .

Manish Maryada, CEO and co-founder of game-based savings app Fello, said that SGBs (sovereign gold bonds) have been making more noise in the market. The press and people talk about SGBs a lot more than gold ETFs because of the tax benefits associated with SGBs. Now, to get a similar growth trend for gold ETFs, some preferential tax accommodations must be provided to gold ETFs and cutting the LTCG (long-term capital gain) in half can be a great first step. to drive this.

Investors generally invest in gold for the long term and classifying it in a tax saving category similar to ELSS will see massive adoption as gold as an asset is close to the Indian audience and such moves by the government will not only boost the mass adoption of gold. ETFs, but it will also make this asset class much more prevalent among users, he added.

Gold ETFs, whose objective is to track the physical price of domestic gold, are passive investment instruments that are based on gold prices and invest in gold bullion.

In summary, gold ETFs are units that represent physical gold that can be on paper or dematerialized. One gold ETF is equal to 1 gram of gold and is backed by very high purity physical gold. They combine the flexibility of investing in stocks and the simplicity of investing in gold.

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