Akshaya Tritiya fails to spark gold ETFs

Gold ETF turnover on NSE was Rs 41 cr, 33% higher than last year, but 94% lower than that recorded in 2013

Trading in gold exchange traded funds (ETFs) on the BSE and the National Stock Exchange (NSE) remained subdued on Akshaya Tritiya on Monday, despite the special extended session offered by the bourses. This was the third consecutive year when trading in the segment has witnessed a tepid response.

Both the exchanges extended the trading hours for gold ETFs till 7 pm on Monday. Gold ETF turnover on the NSE stood at Rs 41 crore, 33 per cent higher than the turnover of Rs 31 crore last year. However, the turnover was 94 per cent lower than that recorded in 2013.

The subdued sentiment was despite the run-up in gold prices in the past few months. Gold prices have risen 11 per cent in the past year in rupee terms.

(An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors. Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated once at the end of every day like a mutual fund does.)

Unlike in the past, mutual funds stayed away from marketing or aggressively doing promotional campaigns in the run-up to Akshaya Tritiya to promote investment in gold ETFs. In 2012, for example, mutual funds had gone all out to promote gold ETFs to investors, even going to the extent of paying higher commission to brokers. Even the exchanges had waived transaction charges for trading in the product on the day.

“Despite the run-up in gold prices in the past few months, gold ETFs have not seen substantial inflows as investors have stayed invested in traditional assets like equity and fixed income,” said R Sivakumar, head of fixed income at Axis MF.  According to him, gold was in favour from 2008 to early 2012 in high inflationary environment. However, with inflation trending lower in the present environment and fixed income assets providing positive real returns, the need for inflation hedge through investment in gold has reduced.

Net outflows into gold ETFs for FY16 amounted to about Rs 900 crore, according to data from the Association of Mutual Funds of India. The assets under management of gold ETFs stood at Rs 6,346 crore at the end of March 2016, compared to Rs 6,655 crore in the year-ago period. Gold ETF schemes have given average returns of 11.2 per cent in the past year.

Trading in gold ETFs over the past four calendar years has seen a significant drop on the exchanges. For example, on the NSE, traded value for gold ETFs has slid 84 per cent to as low as Rs 1,627 crore in 2015 from Rs 10,741 crore in 2011.

Despite the uncertainty, some experts are optimistic that gold could see a further uptick. “Fundamentally, gold seems to be on a solid footing as central bankers have again hit the wall. Gold should benefit as central bankers attempt further measures through newer, unconventional and untested approaches to revive growth,” said Chirag Mehta, senior fund manager (alternative investments) at Quantum AMC.

He added that gold can help reduce risk without sacrificing returns from equity investments.

In general, experts recommend allocating about 10 per cent of one’s portfolio to gold. Gold has been perceived as an inflation hedge and a safe haven in times of geopolitical and financial instability.