Gold ETF net inflows dropped to an estimated ₹3,300 crore in October from a seven-month high of ₹4,450 crore in September. The decline coincided with most asset management companies suspending fresh subscriptions to their gold fund-of-funds in the second half of the month. The suspensions followed a directive from the Securities and Exchange Board of India, issued amid concerns over rising gold imports and pressure on the rupee.
The gold FoF route had become a significant conduit for retail money. Fund-of-funds AUM is equivalent to about one-third of total gold ETF AUM. The suspension applies to new lump-sum investments, SIP registrations, and switch-ins, though existing systematic investment plans in these FoFs continue. This has abruptly reduced a structural source of demand for the underlying gold ETFs, which also receive money through direct exchange purchases and large, direct unit creations with AMCs.
Supply-demand shift
The cutoff of new FoF money shifts the supply-demand balance for domestic gold investment. While global gold ETF holdings reached a record in the third quarter, the Indian segment now faces a headwind from this regulatory intervention. The impact on overall ETF flows may be contained in the near term as existing FoF SIPs and direct ETF investments continue, but the loss of incremental FoF subscriptions removes a predictable flow.
For multi-asset or fixed-income investors assessing gold, the disruption creates a divergence between price and flow. Domestic gold prices are down about 22% from their January peak, trading near ₹1,37,330 per 10 grams. The flow suspension and price correction together present a tactical question: whether impaired structural demand outweighs the valuation argument. The answer hinges on how long the FoF suspension lasts and whether retail allocations find their way into direct gold ETF SIPs or other asset classes instead.