India: Bullion is prefered to Gold ETF.

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In India, in the past year, about a fifth of the accounts set up for investments in gold ETFs have seen closures.

According to the latest statistics from the Association of Mutual Funds of India, gold ETFs have lost 18% of their investor base since May 2020. In recent months, the products have seen continuous net outflows, owing to redemptions and lack of new sales, say analysts.

During 2019-20, gold schemes recorded net outflows of $375 million (Rs 22 billion), against net inflows of $231 million (Rs 14 billion) in 2017-18. During this period, assets under management of gold ETFs declined about $327 million (Rs 20 billion).

“With the global economy recovering, the demand for gold is on the decline. India, in particular, saw banning of gold imports, which impacted ETFs. Though there is not much fresh buying, redemptions have gone up, which has led to an erosion of assets in the category,”

a senior official at Kotak Mutual Fund, which deals in gold ETFs.

While India’s mutual fund industry witnessed 3% growth in assets under management (AUM) in the quarter ended March 31, 2017 to cross the Rs 9 trillion mark, gold ETFs witnessed a fall in AUM to the extent of 5%.

Average AUM of gold ETFs shrank to $1.4 billion (Rs 91 billion) in the reported quarter following an 11% fall in the previous quarter. The category saw outflows of $55 million (Rs 3.4 billion) in January and February, despite a rise in the prices of underlying assets during the quarter.

Data from the Association of Mutual Funds of India showed that net outflow of gold ETFs for the month of March was $24 million (Rs 1.4 billion), while net outflow for the year to date in the current year was $375 million (Rs 22 billion). Assets under management as on March for gold ETFs was $1.4 billion (Rs 86 billion).

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