Heightened risk and uncertainty sparked by the COVID-19 pandemic elicited investors to rush to gold as safe haven as they infused over Rs 6,900 crore in gold exchange-traded funds (ETFs) in 2020-21, more than four times from the preceding fiscal.
This also marks the second consecutive year of inflow. Prior to that, gold ETFs have been witnessing outflows since 2013-14, data from the Association of Mutual Funds in India (Amfi) showed.
Mywealthgrowth.com co-founder Harshad Chetanwala said it is unlikely that inflows in gold would see similar surge in the ongoing fiscal.
According to the Amfi data, investors put in a net sum of Rs 6,919 crore in 14 gold-linked ETFs in the just-concluded financial year, much higher than the Rs 1,614 crore invested in 2019-20.
The safe haven asset had witnessed net outflows of Rs 412 crore in 2018-19, Rs 835 crore in 2017-18, Rs 775 crore in 2016-17, Rs 903 crore in 2015-16, Rs 1,475 crore in 2014-15 and Rs 2,293 crore in 2013-14.
However, the segment had witnessed an infusion of Rs 1,414 crore in 2012-13.
Over the past few years, retail investors poured more money into equities as compared to gold ETFs, mainly on account of decent returns.
Quantum Mutual Fund Senior Fund Manager (Alternative Investment) Chirag Mehta said, "The heightened risk and uncertainty sparked by COVID-19 hurt risk assets like equities in 2020 and investors rushed to the safety and stability of gold, just like they have in previous crises." He added that during and after a crisis, investors tend to start appreciating the risk reducing, return enhancing role of gold in the portfolio, and 2020 was no exception.
In addition to this, the inability of investors to invest in physical gold thanks to the pandemic-induced lockdowns, and restrictions also resulted in additional flows to gold ETFs during the year, he added.
"The flows in Gold ETF during the year 2020-21 was driven by the uncertainty during the COVID-19 pandemic.
"Gold prices usually surge during such global events and many investors invested in gold last year when they started seeing the gold prices increasing," Chetanwala said.
Market Pulse Chief Product Officer Arshad Fahoum said macroeconomic environment, amid low interest rates in debt and fixed deposits, also could have made people shift to gold as a safe haven investment.
Vijay L Bhambwani, head of research, Behavioural Technical Analysis at Equitymaster, said investors are sensing a weak rupee and hedging against it by buying gold.
The inflows led asset under management (AUM) of gold funds increasing by 78 per cent Rs 14,123 crore at the end of March 2021 from Rs 7,949 crors in March-end 2020.
Morningstar India Director (Manager Research) Kaustubh Belapurkar said gold ETFs continue to receive steady inflows from investors in this fiscal as investors are steadily acknowledging the need for adding gold as a diversifier in portfolios.
"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 it's safe-haven appeal," he added.
Going forward, Quantum Mutual Fund's Mehta said that flows into gold ETFs to continue as gold remain an under-allocated asset in investor portfolios in these uncertain times.
Chetanwala of Mywealthgrowth.com said the second wave of COVID-19 in India can make investors in stock market a bit nervous and think about safer asset, but the situation is different this time. Though the second wave is expected to have higher number of cases than the first one based on what we are seeing so far, he added.
"At the same time, we also know how to take care of such situation (COVID-19) which was not the case last time. Hence, it is quite unlikely that inflows in gold would see similar surge in this year," he added.
Gold-backed ETFs are passive investment instruments that are based on price movements and investments in physical gold