ETFs drew significant investor interest in July, with inflows for ETFs other than gold at Rs 13,126 crore, the highest since the February 2020 level of Rs 16,344 crore.
The asset base of India’s mutual fund (MF) industry swelled by over 6% on-month in July to Rs 27.12 lakh crore, marking the fourth straight month of gains. Overall assets under management (AUM) were last seen over the Rs 27 lakh crore level in February, before falling precipitously in March when the market witnessed a correction due to the Covid-19 pandemic and ensuing lockdown. Mark-to-market (MTM) gains in equities and firm inflows in debt funds contributed to the July increase. Continued strong interest in gold and equity exchange traded funds (ETFs) also played a role, according to CRISIL Research.
Redemptions across most categories led to open-ended equity schemes recording their first cumulative net outflow since April 2019, when the Association of Mutual Funds in India (AMFI) began disseminating data in the current format. Net flows in the category have been on a downward spiral since April and barely positive at ~Rs 240 crore in June. In July, the trend continued, leading to net outflows of Rs 2,480 crore. On the positive side, flows through systematic investments plans (SIPs) have sustained around the Rs 8,000 crore mark till June.
Specifically, multi-cap funds bore the brunt of outflows in July, amounting to ~Rs 1,033 crore while mid-cap funds saw investors pull out monies to the tune of Rs 579 crore. Incidentally, these are the highest net monthly outflows that both categories have seen since April 2019. Value/contra funds witnessed net outflows totalling Rs 549 crore, while for the large and midcap category, the corresponding outflow figure was ~Rs 467 crore.
Equity linked savings scheme (ELSS) and focused schemes were the only open-ended equity categories that managed to attract some inflows. ELSS found favour with investors as the deadline for tax saving investments for the previous fiscal drew closer end-July. Together, the categories saw net inflows of Rs 814 crore.
ETFs, however, drew significant investor interest in July, with inflows for ETFs other than gold at Rs 13,126 crore, the highest since the February 2020 level of Rs 16,344 crore. Further, surge in gold prices also continued to benefit gold ETFs, which saw net inflows of Rs 921 crore in July compared with Rs 494 crore in June. Gold prices as represented by the CRISIL gold index advanced 9.1% on-month in July and ~35% in the year till date, as per CRISIL Research.
Industry experts say gold prices continued to scale new highs on the back of weakness in the US Dollar, tension between US and China, and consistent rise in Covid-19 cases globally, which boosted its safe-haven appeal.
With all major economies staring at recession due to the spread of the coronavirus pandemic, gold expectedly has emerged as one of the best performing asset classes and a preferred investment destination among investors.
Commenting on Gold ETFs based on AMFI’s monthly data for July ’20, Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, said, “With its safe-haven appeal and being one of the better performing asset classes since 2019 and this year so far, Gold ETF category has been gaining significant traction from Indian investors. Since August 2019, the category has received a net inflow of Rs 4,644.36 crore. That said, the surge in gold prices did provide profit booking opportunities to investors in the interim. As a result, the Gold ETF category witnessed net outflow of Rs 31 crore in October 2019 and a net outflow of Rs 194.9 core in March 2020.”
However, since then, investors have made a strong comeback into the category and it has witnessed consistent net inflows since April. In July, the category recorded a robust net inflow of Rs 921.2 crore, sharply higher than the net inflow of Rs 494.2 crore recorded in the previous month. This year so far, the Gold ETF category has received a net inflow of Rs 4,451.9 crore.
“As the surge in coronavirus cases has cast a doubt on the swift recovery hopes, investors continue to hedge their exposure to riskier assets by investing a portion of their assets in gold, as it is seen as a safe haven in times of uncertainty. Considering the threat posed by the coronavirus pandemic to the global economy and the markets, this segment may continue to gain traction from investors,” said Srivastava.