/Are investors shifting from gold funds to gold ETFs?

Are investors shifting from gold funds to gold ETFs?

Gold has been shining bright in the past three months. Due to the rally in gold prices, gold funds and gold ETFs have been receiving large inflows in the recent past. However, one thing that catches the eye is that investors have been betting more on gold ETFs than gold funds. Mutual fund participants say the shift is indeed happening and offer a variety of reasons for it.

Gold ETFs saw an inflow of Rs 921 crore in July, a surge of 86% from the preceding month. Gold funds, on the other, saw net inflows worth Rs 471 crore. If we look at data from January this year, Gold funds had seen an inflow of Rs 56 crore, compared to an inflow of Rs 202 crore in Gold ETFs. In Feb, Gold funds saw a decline in inflows. Investors pumped in Rs 29 crore in gold funds, compared to a whopping Rs 1,483 crore in Gold ETFs in the same month.

Here is a table showing the monthly inflows/outflows from the gold funds and Gold ETFs since March:

Month Gold Funds Gold ETFs
March 39 crore -195 crore
April 333 crore 731 crore
May 344 crore 815 crore
June 230 crore 494 crore
July 471 crore 921 crore

Mutual fund participants point out that gold funds category also consists of gold fund of funds or FoFs, which invest in gold ETFs. So, the AUM gets added to ETFs. This is the biggest cause for the whopping numbers in gold ETFs, they say.

“All fund houses have FoFs and gold funds. Some of these FoFs have been marketed at very low expense ratios and in some cases with low exit loads. For example, Nippon India ETF Gold BeES has 0% exit load and Nippon India Gold Savings Fund has no exit load if you redeem after 15 days. This is attractive for those who want to buy and sell in a gold rally,” says Chokkalingam Palaniappan – Director – Prakala Wealth, a Chennai-based wealth management firm.

Mutual fund participants also believe that lately retail investors have been keen on taking derivative positions and investing in stocks and ETFs. Investors have been opening trading accounts in large numbers during the lockdown, according to brokerages.

“There definitely is a slight shift towards Gold ETFs and that’s also because of the sentiment. Mutual fund houses are also selling ETFs more than usual. For a while now, there has been a positive sentiment for ETFs and passive funds in general and the inflows into ETFs have been on a rise. That sentiment is playing out in the gold ETFs as well,” says Vidya Bala, co-founder, Primeinvestor.in. Bala also believes that some investors have been taking derivative positions in the gold ETFs.

“Due to lockdown and issues in physical deliveries, many commodity investors have also shifted to gold ETFs. It is easier to take position and sell ETFs. And also FoFs have interesting schemes these days. So, there is increased interest in FoFs as well as ETFs for quick money,” says Chokkalingam Palaniappan.

A look at the expense ratio and exit loads of gold funds v/s gold FoFs and ETFs.

Scheme name Expense ratio Exit Load
Nippon India ETF Gold BeES 0.79% 0%
Nippon India Gold Savings Fund (FoF) 0.36% 1% for redemption within 15
HDFC Gold Fund 0.55% 2% for redemption within 180 days

1% for redemption between 181 – 365 days

HDFC Gold Exchange Traded Fund 0.64% 0%

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