Gold ETF Investments Soar to Rs 1.9 Lakh Crore; Investors Cautioned Against FOMO Buying
Mumbai: Investors are increasingly turning to gold exchange-traded funds (ETFs) to capitalise on the sharp rally in gold prices, pushing assets under management (AUM) to nearly Rs 1.9 lakh crore. However, the rapid inflow of investments has raised concerns about excessive exposure to gold and a departure from disciplined portfolio allocation.
According to a report released by OmniScience Capital on Friday, gold ETF assets have grown significantly faster than equity mutual fund assets, even after adjusting for returns in the underlying asset classes. This indicates that investors are increasingly allocating money to gold in response to its recent price performance.
“We believe this FOMO behaviour would have been similar for any security whose price is rising. This aggressive migration signals a notable departure from structured asset allocation,” said Ashwini Shami, President and Chief Portfolio Manager at OmniScience Capital.
Gold ETF Folios Grow 2.6 Times in Three Years
The analysis revealed a significant increase in investor participation in gold ETFs over the past three years.
Since September 2023, the number of gold ETF folios has increased 2.6 times, while folios in large-cap equity mutual funds have grown only 1.3 times.
The rapid expansion highlights the growing popularity of gold among investors, particularly amid the recent surge in precious metal prices.
Gold Allocation Raises Portfolio Balance Concerns
OmniScience Capital observed that the growing exposure to gold appears inconsistent with commonly recommended asset allocation strategies.
Financial experts generally suggest allocating around 5-10 per cent of an investment portfolio to gold, while alternative assets as a broader category typically account for approximately 10-20 per cent.
Other alternative investments include private equity, structured debt, Specialised Investment Funds (SIFs), Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
The report noted that gold ETF assets have reached nearly Rs 1.9 lakh crore, equivalent to approximately 47 per cent of the nearly Rs 4 lakh crore managed by large-cap equity funds.
The firm considers this level of gold exposure stretched and has advised investors to exercise caution before increasing their allocations further.
Investors Advised to Reassess Gold Investments
Ashwini Shami urged investors to review their existing portfolios and moderate expectations about future gold returns.
While maintaining a positive long-term outlook for gold, he questioned whether gold prices, inflation and interest rates could continue rising simultaneously over the coming years.
The report also highlighted potential challenges to the gold rally from changing global investment patterns.
According to the analysis, strong gold purchases by central banks may not necessarily push prices significantly higher if other investors increasingly shift towards fixed-income investments offering attractive yields.
Growing allocations to short- and medium-duration debt instruments could offset some of the demand from central banks and help moderate global gold prices.
Asset Allocation Remains Key for Investors
The report emphasised the importance of maintaining a balanced investment portfolio rather than chasing assets solely because of their recent price appreciation.
Although gold can provide diversification and act as a hedge against economic uncertainty, excessive concentration in any single asset class can increase portfolio risks.
Investors have therefore been advised to review their financial goals, risk appetite and existing asset allocation before making additional investments in gold ETFs.
