Gold ETFs witnessed a 57 per cent decline in net inflow to Rs 288 crore in May compared to the preceding month, as investors diverted money into equity markets.

Despite the drop in inflow, the assets under management (AUM) of gold ETFs rose by over 6 per cent to Rs 16,625 crore at May-end, against Rs 15,629 crore at April-end, data with Association of Mutual Funds in India (Amfi) showed.

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According to the data, a net sum of Rs 288 crore was pumped into gold-linked exchange-traded funds (ETFs) last month, lower than Rs 680 crore in April.

Investors had put in Rs 662 crore in such funds in March, Rs 491 crore in February and Rs 625 crore in January.

“The lower quantum of net inflow in May could be attributed to equity markets doing well and investors diverting a relatively larger portion of their investments there,” said Himanshu Srivastava, Associate Director Manager Research at Morningstar India.

Also, the redemption amount shot up in May compared to April, signifying that few investors would have chosen to book profit given the recent surge in gold prices, he added.

With its safe-haven appeal and being one of the better performing asset classes in the last one and a half year, the Gold ETF category has been gaining significant traction from Indian investors.

From January 2020 till May 2021, the category has received a net inflow of Rs 9,377 crore.

According to Srivastava, gold functions as a strategic asset in an investor’s portfolio, given its ability to act as an effective diversifier, and alleviate losses during tough market conditions and economic downturns.

“During the challenging investment environment over the last few years, gold emerged as one of the better performing asset classes, thus proving its effectiveness in investors’ portfolio,” he said.

Expectedly, this has attracted investor interest, and continues to do so, which is evident from the consistent net inflows into the gold ETF category, he added.

Gold ETFs are exchange-traded funds that invest in gold. They are traded on the stock market and make direct investments in gold.