![](\"https:\/\/im.rediff.com\/money\/2023\/feb\/13gold-etf.jpg?w=670&h=900\")
<\/p>\nGold burnished its image as the go-to asset class during turbulent times.<\/p>\n
However, investors seemed to have missed the bus.<\/p>\n
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Net inflows into gold exchange-traded funds (ETFs) plunged to a four-year low of Rs 653 crore in 2022-23 (FY23), even as gold emerged as the top-performing asset class.<\/p>\n
Gold ETFs delivered returns of 14 per cent last financial year.<\/p>\n
By comparison, the benchmark S&P BSE Sensex and the National Stock Exchange Nifty delivered near-zero returns.<\/p>\n
Investment advisors say that investor interest in any asset class is driven by past returns.<\/p>\n
Since equities delivered the highest returns in 2020-21 (FY21) and 2021-22, investors continued to flock to that asset class in FY23.<\/p>\n
Gold ETFs had raked in close to Rs 7,000 crore in FY21 as they delivered over 37 per cent returns in 2019-20.<\/p>\n
However, FY21 proved to be a lacklustre year for gold and a blockbuster one for equities, with the Sensex climbing 68 per cent.<\/p>\n
“Money flows into the best-performing asset class.<\/p>\n
“Interest in gold dried up after its poor performance FY21,” says Nitesh G Buddhadev, founder, Nimit Consultancy.<\/p>\n
Even as gold’s performance has improved in recent months, experts believe that investors might be waiting on the sidelines to enter at better prices.<\/p>\n
“Investors may be waiting for some correction in prices. Also, some flows could have shifted to debt funds, given the rise in yields,” says Dev Ashish, founder, Stable Investor.<\/p>\n
Even as returns improve, gold ETFs face a new challenge in the form of loss of indexation benefit.<\/p>\n
Changes brought in tax laws will lead to a higher tax outgo for gold ETF investors. Experts see the development as disrupting flows into the product.<\/p>\n
In India, gold prices remained at about Rs 52,000 per 10 gram in the first eight months of FY23 before picking up to Rs 60,000 by the end of the year.<\/p>\n
The surge in prices — underpinned by a depreciation of the rupee and an uptick in global prices — ensured double-digit returns for gold ETF investors.<\/p>\n
The ETFs delivered 12-13 per cent returns during the period.<\/p>\n
“Gold has continued its outperformance of 2022 in the first three months of 2023, led by softness in bond yield and a moderation in the dollar index, compared to a few months ago.<\/p>\n
“The challenges in the US and European banks have led investors to move towards a flight for safety, leading to gold prices climbing up 7 per cent in rupee and 8 per cent in US dollar terms in March 2023,” observes Axis Securities in a report.<\/p>\n
The brokerage expects further upside in the months to come.<\/p>\n
“A clear direction is likely to emerge only when volatility settles at lower levels for a longer time.<\/p>\n
“Until then, gold will continue to find an edge over other asset classes. Fundamentally, gold prices are inversely correlated with bond yield direction.<\/p>\n
“Based on the current macroeconomic development, gold will continue to be the preferred asset class until uncertainties over the Russia-Ukraine conflict fades.<\/p>\n
“It will continue to attract investments as a proven hedge against other asset classes,” the report adds.<\/p>\n
Flows into gold ETFs are not the only yardstick to gauge interest in the yellow metal, given there are several other avenues such as sovereign gold bonds, physical gold, and e-gold.<\/p>\n