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Gold ETFs Popular in India

August sees trebling of Gold ETF holdings...

WITH GLOBAL stock markets turning weak in August, investors here in India appear to have taken a fancy to gold exchange traded funds. Data shows that assets of Gold ETFs in India jumped nearly three times in August when compared to the same period last year, writes MineWeb's Shivom Seth in Mumbai.

Gold ETF assets jumped to $1.58 billion during August 2011 from $55 million a year ago, according to data from the Association of Mutual Funds in India.

"With markets turning volatile, the number of ETF transactions has increased. In some cases, yields on a daily basis over the last few weeks have really been good, tempting people to park their excess money for short duration into some of these funds,'' said Rajesh Krishnam, managing director of investment firm, Inqua Financials.

"The high volatility in Gold Prices has also resulted in increasing number of transactions on Gold ETFs online,'' he added.

At the end of August, spot Gold Prices in India were up 42% year-on-year at $567.36 per 10 grams. Analysts said short term traders and speculators pushed up activity in the Gold ETF segment on the National Stock Exchange in Mumbai.

"Gold ETFs have given a double digit return over the last two years, as against other equity funds that have remained almost flat in terms of returns,'' said Suresh Kalavalkar, bullion analyst. "In the month of August, Gold ETFs in India have given investors the highest ever monthly return of over 15%,'' he added.

Incidentally, during the same month, diversified equity funds posted an average drop of 7.86%, registering their worst monthly performance since January 2011, data showed. 

The month of August has also recorded 9.3% drop in the Bombay Stock Exchange mid-cap index, while the small-cap index recorded a drop of 14.13%.

"It is very difficult to gauge the equity market in India right now. Globally, the equity markets are pulling several economies down. For investors, it is a difficult task to adjust, if the money is in it for the long term. Though the long term argument continues to be in favor of Indian stocks, investors have taken a liking to Gold ETFs,'' said Manjunathan K, of financial services firm, ING Investments.

Though a relatively new avenue for investment in gold, ETFs have gained popularity among Indian investors over the past couple of years. Traders note that assets under management in the 11 Gold ETFs in India have risen to $10.71 billion. These 11 ETFs hold 24.1 tonnes of gold between them, said traders.

As of end-August, Benchmark Gold ETF had assets under management (AUM) of 9.52 tonnes, Reliance Gold ETF had 5.47 tonnes AUM, UTI-Gold ETF had 2.66 tonnes AUM, Kotak Gold ETF had 2.14 tonnes AUM and HDFC MF Gold ETF had 1.37 tonnes AUM. Data for the others was not easily available.

Moreover, at the start of September, ratings agency Crisil launched a gold index to establish a uniform benchmark for instruments (like exchange traded funds), with gold as an underlying investment. The index is set to track the performance of Gold Prices in the domestic market. 

"ETFs as a concept are picking up here and in the long term, we believe more fund houses would like to add them to their portfolios,'' said Tarun Bhatia, director, Crisil Research. "The Gold Index (launched by the firm) will address a lot of inconsistencies in the market and will give an opportunity to use it as the benchmark for evaluating the performance of various gold products,'' he added.

With January 2, 2007, as the base date, the index is based on the landed price of 10 gram gold in Mumbai. It will be publicly accessible on a daily basis.

Crisil said the average assets under management under this category have grown from around Rs 1 billion in March 2007 to Rs 60 billion as on June 2011. Globally, assets under management of Gold ETFs has grown to $100 billion as of June 2011, against $14 billion in April 2007.

Another research analyst pointed out that over the last few months, there has been a huge interest in Gold ETFs as their prices have shot up sharply. 

"In the current calendar year so far, Gold ETFs have given a return of over 29%, while in the last one year it gave a high return of over 40%. On the other hand, equity funds have given negative returns in the last one year,'' said Palak Bokade, precious metal analyst with an investment firm in Mumbai.

Traders also said the recent spurt in Gold Prices has led to inflows coming into Gold ETFs. In the current calendar year, Gold ETFs have seen inflows of over $4.21 billion. Keeping this in mind, several fund houses have started to offer a systematic investment plan (SIP) option with their Gold ETFs.

Currently, there are 11 Gold ETFs in India. Fund houses like Baroda Pioneer MF, Motilal Oswal MF, IDBI MF and Birla Sun Life MF are said to be planning an issue of gold funds and have already filed an offer document with India's market regulator, the Securities and Exchange Board of India.

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Founded in 1999 as part of the Johannesburg-listed MoneyWeb media group, Mineweb is one of the world's leading sources of mining and metals-investment news, comment and analysis. Managed since 2003 by professional mining engineer Lawrence Williams – formerly of Mining Journal, and with more than 30 years' technical and financial experience in the sector – MineWeb provides thorough, international coverage of the natural resources industry.

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