The shift from gold funds to gold ETFs

The shift from gold funds to gold ETFs

For the past three months, gold has been shining nice and bright. The rally in gold prices has led to gold funds and gold ETFs has been receiving large inflows in the recent past, but it is worth noting here that investors are betting more on gold ETFs. 

Gold ETFs witnessed an inflow worth INR 921 crores in July, which is an increase of 86 percent from the previous month. On the other hand, gold funds witnessed net inflows worth INR 471 crores. 

Looking at the data from January this year, gold funds have seen inflows of INR 56 crores, while ETFs saw an inflow worth INR 202 crores. And in February, gold saw a decline in inflows. In the same month, investors pumped in INR 29 crores in gold funds, as compared to the INR 1483 crores in gold ETFs. 

As per mutual fund participants, the gold funds category consists of gold funds or FoFs, that invest in gold ETFs. The AUM gets added to ETFs, which is a major reason for the rising numbers of gold ETFs. 

All fund houses have gold funds and FoFs. Some of these FoFs are marketed at low expense ratios, and in other cases, with low exit loads. For instance, Nippon India ETF Gold BeES has a zero percent exit load, while Nippon India Gold Savings Fund has no exit load if the redemption is after 15 days. For those who want to buy and sell in a gold rally, this is really attractive. 

The retail investors have been, of late, keen on taking derivative positions, and are investing in stocks and ETFs. Investors have also been opening trading accounts in large numbers since the lockdown. 

There has definitely been a slight shift toward gold ETFs, and mutual funds houses are also selling ETFs more than usual. For some time now, there has been a positive sentiment for ETFs and passive funds in general. Consequently, inflows in ETFs are also rising. And this sentiment is playing out in gold ETFs too. 

Because of the lockdown and the issues in physical deliveries, a lot of commodity investors have shifted to gold ETFs. It is easy to take a position and sell ETFs. Moreover, FoFs also have interesting schemes these days. Thus, there is an increased interest in FoFs and ETFs for quick money.