Gold-traded funds (ETFs) witnessed a net outflow of Rs 248 crore in February, marking the second consecutive month of withdrawals as investors favored stocks over other segments with record SIP flows.

The net outflow from the gold ETFs was Rs 452 crore in the month of January. Before that, the asset class had seen a net investment of Rs 313 crore, according to Association of Mutual Funds in India (Amfi) data.

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Despite the outflows, the category witnessed an increase in the net assets under management (AUM) of gold ETFs to Rs 18,727 crore at the end of February, from Rs 17,839 crore at the end of January. The segment also saw the number of folios increase by 3.09 lakh to 37.74 lakh during the reporting period.

This move could aim to view gold assets as a tool for investor diversification and a hedge against market volatility, said Priti Rathi Gupta, founder of LXME.

She attributed the latest gold ETF outflows to two factors: Investors may be shifting their investments from gold instruments to equities as a strategy for portfolio rebalancing because of the attractive returns generated by the stock markets. Investors also see this market correction as an opportunity to enter the markets.

“Second, given the rise in gold prices, traders may have taken the profits and closed their trades to manage their margin money for trading other asset classes,” she added.

Kavitha Krishnan, Senior Analyst – Research Manager, Morningstar India, said investors have almost always favored gold as an asset that can be used to mitigate risk and diversify their investments.

Over time, rising gold prices and increasing lure around the commodity have led many investors to choose to invest in gold ETFs. However, the category is witnessing an outflow for the second month in a row.

“With stocks generating the most flows and SIP (Systematic Investment Plan) hitting record highs, investors seem to prefer this segment over the others, including gold ETFs. In addition,

investors also seem to be making gains by paying back their investments, given the rise in gold prices,” she added.

Throughout 2021, gold ETFs attracted Rs 4,814 crore, mainly due to the pick-up in inflation and increased market valuations. Inflows were lower compared to Rs 6,657 crore in 2020. Gold ETF, which aims to track domestic physical gold price, are passive investment vehicles that are based on gold prices and invest in gold bullion.

Basically, gold ETFs are units that represent physical gold, which can be in paper or dematerialized form. One unit of gold ETF is equal to 1 gram of gold and is backed by very high purity physical gold. They combine the flexibility of stock investing and the simplicity of gold investing.

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