Risk-averse investors take a shine to gold ETFs

Notwithstanding the gloom surrounding the Covid-hit economy, the unrelented rally in equities in the last few months has been driving investors to hedge their risk in gold.

The investors’ worry was further authenticated by the RBI’s recent concern over a possible bubble in equity with the stock price of corporates running much ahead of possible earning upside.

Inflows rise

The inflow into gold exchange traded fund has more than trebled in the last five months to ₹9,377 crore against ₹3,036 crore logged between January and May 2020.

The asset under gold ETF management was up 65 per cent at ₹16,625 crore in May against ₹10,102 crore recorded in the same period last year.

With volatility in equity market increasing by the day and all the voices that matter in the market expressing concern over high valuation, investors are steadily acknowledging the need for adding gold as a diversifier in their portfolios.

Tracking the global trend, gold prices in India shot up by ₹2,015 per 10 gram or four per cent to ₹48,975 from ₹46,960 in May. It has further jumped to ₹49,028 on Friday.

“Gold prices have been rising on the back of high US inflation and US Federal Reserve predicament over reversing the current easy monetary policy,” said a bullion trader.

Himanshu Srivastava, Associate Director, Morningstar India, said gold — considered a haven — functions as a strategic asset in an investor’s portfolio, given its ability to act as an effective diversifier and alleviate losses during adverse market conditions.

Balanced portfolio

During the challenging investment environment over the last few years, gold emerged as one of the better performing asset classes, thus proving its effectiveness in investors’ portfolio, he said. Expectedly, this has attracted investors interest and continues to do so which is evident from the consistent net inflows into Gold ETF category.

Sorbh Gupta, Fund Manager (Equity), Quantum Mutual Fund, said the small and mid-cap indices are up by 118 per cent and 86 per cent in the last one year against Sensex return of 62 per cent. “This reflects some sense of complacency in terms of risks and we would advise investors to exercise caution in this space,” he added.

The last 12-14 months have also been a wake-up call for a balanced asset allocation plan and investors are suggested to ensure they spread their savings across equities, debt and gold-based risk and return preferences, he added.