Gold ETFs have reported a net outflow in each of the past 15 months, totalling a cumulative outflow of Rs3,194 crore. Post the financial crisis, when investors started to shun equity schemes, most of the fund houses launched gold ETFs and have been vigorously pushing this as an essential part of retail investors’ investment portfolio. Over the three years, from April 2009 to March 2012, the number of gold ETFs increased from five schemes to 14 schemes and investors poured in Rs6,700 crore in gold ETFs. 

 

 

Indian investors often seek guaranteed and safe returns, seeing the price of gold rise continuously over the previous years; they would have been led to believe that the price of gold would never crash. In that period, gold ETFs emerged as the favoured investment avenue for the retail population, seduced by the relentless rise in gold prices. Many investors accepted the continuing rally in gold as a foregone conclusion and put their savings in this asset, cheered on by AMCs and their distributors.  

 

 

 

However, when the price of gold underwent a major correction in April 2013, investors were caught unaware. Gold has always been considered a hedge against inflation. But now, that belief seems to have been questioned. Many investors may have been buying ETFs without fully realising the downside of them—low liquidity that can play havoc with the price at which you buy and sell when the market is volatile. Not being prepared for this, investors seem to be shunning gold ETFs and are opting for other assets. Even if the price of the metal falls, you will still end up paying fund management charges.