Gold ETFs shine in October too, record net inflows of Rs 384 cr

The Gold ETF category continued to receive net inflows in the month of October too, with a net inflow of around Rs 384.2 crore. That made it an uninterrupted net inflow for seven months in a row.

It may be noted that having witnessed almost an uninterrupted rally this year, gold prices came-off their all-time high recently. This probably provided a good entry point for investors to invest in the yellow metal. Consequently, the Gold ETF category received net inflows of around Rs 597.3 crore in September and Rs 384.2 crore in October, according to AMFI’s monthly data for October 2020. This year so far, the category has received a net inflow of Rs 6,341.2 crore.

“With all major economies struggling to get back on growth trajectory due to the adverse and huge economic impact of the coronavirus pandemic, gold, with its safe-haven appeal, has emerged as one of the best performing asset classes and a preferred investment destination among investors. Moreover, as the surge in coronavirus cases in several parts of Europe and the US and subsequent lockdowns have cast a doubt on the swift recovery hopes, investors continue to hedge their exposure to riskier assets by investing a portion of their assets in gold, as it is seen as a safe haven in times of uncertainty,” said Himanshu Srivastava, Associate Director – Manager Research, Morningstar India.

He believes that considering the threat posed by the coronavirus pandemic to the global economy and the markets, this segment may continue to gaining traction from investors.

Gold functions as a strategic asset in an investor’s portfolio, given its ability to act as an effective diversifier, and alleviates losses during tough market conditions and economic downturns. This is where it draws it’s safe-haven appeal, which has been on full display since 2019.

After net outflows in September, most of the debt-oriented categories also witnessed net inflows in the month of October. The Liquid Fund category was the biggest beneficiary, followed by Money Market Fund and Short Duration Fund.

“Investors continue to focus on fixed income categories having relatively shorter duration profile. Hence significant flows have come in Ultrashort, Low Duration, Money Market and Short Duration Funds. In addition to that, funds with pristine credit quality, especially from categories such as Banking and PSU Fund and Corporate Bond, continue to gain traction from investors highlighting their preference for safety in this segment. Money Market funds have also been the beneficiary of this trend,” said Srivastava.

This also means that investors continue to tread a line of caution by staying away from riskier investments. Hence, Credit Risk category continues to witness net outflows, although the pace has slowed down significantly.

The flows into Medium Duration category has stabilized over the last four months. Since July, the category has received net inflows of Rs 4,251.6 core. In October alone the net inflows amounted to Rs 1,566.1 crore. This category houses some credit-oriented strategies and suffered significantly during the March, April and May period of liquidity crises. From March 2020 till June 2020, the category witnessed a net outflow of Rs 10,274 crore. However, since then, the credit profile of these funds has improved with higher investments in AAA or equivalent rated securities. Also, on the duration front, the category is positioned well in the current environment. This would have prompted investors to have a relook at the category.