After the steady rally in recent times, the sudden fall in precious metal prices made investors trim down their investment in gold and silver exchange traded funds.
Inflows into gold ETFs fell by 56 per cent to ₹2,266 crore against the record inflow of ₹5,255 crore logged in February as the sudden fall in prices scared investors.
The gold ETFs have mopped-up an investment of ₹24,040 crore in January supported by strong risk aversion, portfolio rebalancing and momentum in gold prices.
Despite the month-on-month slowdown, the category had a strong quarterly inflow of ₹31,561 crore in March quarter. The trend suggests that gold continues to be used both as a tactical hedge and as a strategic portfolio allocation.
The assets under management of gold ETFs were down at ₹1.71 lakh crore (₹1.83 lakh crore) last month due to mark-to-market loss, according to the Association of Mutual Funds in India data released on Friday.
Nehal Meshram, Senior Analyst, Morningstar Investment Research India, said that while the pace of inflows has moderated sequentially, investor interest in gold-backed products remained positive.
The positive flows in March suggest that gold continues to retain investor interest as a diversification tool amid market uncertainty and macro volatility. Gold ETFs remain appealing because they offer a metal liquid, transparent, and convenient way to gain exposure to gold without the frictions of holding physical gold, he added.
Gold prices fell 8 per cent to ₹146,126 in March as investors shifted their bets to crude oil from the yellow metal.
The LBMA gold prices fell 12 per cent in March to $4,608 an ounce, its weakest month since June 2013.
On the other hand, silver ETFs outflow moderated to ₹684 crore against outflow of ₹826 crore in February. The silver AUM stood at ₹79,806 crore (₹91,975 crore) with the sharp fall in prices.
Nitin Agrawal, CEO, Mutual Funds, InCred Money, said that moderation in Gold ETF flows points to a renewed optimism around equities.
The broader takeaway, he said, is that despite industry AUM decline, investor confidence remains intact on equity with a more diversified approach of investing.