All The Glitters Is Not Gold

  Author: Kundan Kishore

The last financial year 2016-17 was obviously a great year for the mutual fund industry. Nowhere is it more visible than for equity mutual funds which added as much as Rs ​60,270 crore to their assets under management (AUM). A lot of this new inflow came in through regular investments in systematic investment plans (SIP). As statistics like these come from the industry, compliments are due to it for its efforts to ensure regular investments in equities through SIP.  But there is another development that hasn’t not got the news coverage it deserves.

Gold ETF outflow This deals with investors moving out of gold exchange traded funds (ETFs). By investing in gold ETFs, you own gold in the electronic form. ETFs track the price of physical gold in the same way other ETFs like equity ETFs track particular stocks indices. The main reason for the outflow from gold ETFs which were immensely popular some years back, could be the attributed to poor performance of gold prices in last five years. At the same time, equities including equity funds have performed well in last few years. This has attracted investors more towards equities even as they begun shunning gold and gold ETFs.​ Consequently in 2016-17, there was an outflow of Rs 775 crore from gold ETFs.

So, what about the financial year 2017-18? Much will depend

​on economic growth outlook for the financial year along with factors such as geopolitical tensions. Typically, in times of tepid economic growth and geopolitical tensions, gold does well. During such times, investors typically flock to gold and gold ETFs since they are looking for lower risk havens.