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Gold ETF inflow dips since Sept

Higher prices, volatile market and investment alternatives make many stay away

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After equities, it seems are now wary of gold exchange traded funds (ETFs), too, as the yellow metal’s prices continue to remain higher. Net inflows are fast shrinking and even investors have started moving out of this asset class offered by mutual fund houses.

The first half of the current financial year witnessed robust inflows of Rs 2,658 crore, surpassing what the industry could garner in the previous financial year. The investments in gold ETFs touched its peak when investors pumped in close to Rs 1,000 crore in September. However, what followed in the second half of the year suggests lessening investors’ interest in gold.

Nitin Rakesh, chief executive of Motilal Oswal Mutual Fund, notes gold is price-sensitive. “Higher prices could be one factor why investors are staying away. After Diwali, it’s an off-season; hence, a reduction in sales,” he says. “I believe that at current prices, investors have shelved their plans. Even so, if markets correct, say to Rs 23,000 or Rs 25,000, then people would put in money.”

LOSING LUSTRE
Inflows dwindle in gold ETFs so far in FY12
Month Net
inflows
Total 
sales
AUM
Apr  121 239 4,800
May  569 621 5,463
Jun 252 312 5,568
Jul 234 336 6,119
Aug 494 857 7,578
Sep 988 1,234 8,173
Oct 455 536 9,090
Nov -22 352 9,568
Dec 157 233 9,153
Jan 82 136 9,614
Feb 85 117 9,795
All figures in Rs crore
Source : Association of Mutual Funds in India (Amfi)

February continued to be a dull month for gold ETFs, as fresh money that was pumped in stood at a mere Rs 85 crore. Prior to this, in January, too, only Rs 82 crore could make its way to gold ETFs. Interestingly, over 4,000 folios in this category got closed last month — for the first time over the last one year.

“Gold is an asset class which is well understood by Indian investors,” explains the chief marketing officer of a large-sized fund house which has a gold product. “One cannot rule out that higher prices are somewhat having its impact on gold ETFs sales. But I do not think it is alarming.”

During the current financial year, spot prices of standard gold shot up to as high as Rs 29,140 during November, marking a rise of 40 per cent. This high return came at a time when equity had seen an erosion of close to one-fourth of their values. Since then, gold prices corrected 4.5 per cent, but continued to remain volatile.

Dhruva Chatterji, senior research analyst at Morningstar India, says volatile markets and constant higher prices of gold are proving deterrent for retail investors. “If they are staying away from gold and equities, it is because they have availability to better return avenues, including fixed deposits and infrastructure bonds,” he adds. “Investors are smart and tend to migrate to safer havens for better returns.”

Gold funds have been the best performing schemes for over a year. For the year ending 20 March, funds in the category have given a return of 31.53 per cent. This means an investment worth Rs 100 has a current value of Rs 131.53.

The current financial year has seen assets under management (AUM) more than doubling in gold funds. As on February 29, stood at Rs 9,795 crore against Rs 4,400 crore as on March 31, 2011.

During the year, two new gold funds were launched. Recently, too brought its gold ETF.

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