Inflows into gold ETFs rise 32% year to date

With exchange-traded funds (ETFs) fast gaining popularity among investors, including those from overseas, Indian ETFs which track gold are witnessing substantial increase in inflows.

Despite the fact that prices of the yellow metal are highly volatile, inflows into gold ETFs have jumped 32 per cent year to date compared with the same period last year. According to figures available with the Association of Mutual Funds in India (Amfi), gold ETFs have seen net inflows of Rs 176 crore during the period under review, as against Rs 133 crore in the corresponding period last year.

Currently, there are six gold ETFs in the market — one each from Benchmark, UTI, Kotak, Quantum, SBI and Reliance Mutual Fund.

Gold ETFs are open-ended mutual fund schemes that invest in standard gold bullion (0.995 purity). In these ETFs, the investor’s holding is denoted in units, which get listed on a stock exchange. These are passively-managed funds designed to provide returns comparable with that from physical gold in the spot market.

“We have seen awareness about gold ETFs increase over a period of time. Earlier, people were not aware of this asset class. But now, the investor interest in physical gold is gradually shifting to paper gold, which is a healthy sign. There has been an increase in the inflows for us as well,” said Rajan Mehta, executive director, Benchmark Mutual Fund.

According to World Gold Council (WGC), Indian households own about 15,000 tonnes of gold, accounting for around 10 per cent of the global stock. In spite of gold prices remaining highly volatile, especially in the last four months, gold ETFs as a category are giving 24.22 per cent annual returns. Prices of the yellow metal have moved from Rs 15,130 to Rs 14,855 per 10 gm in August.

Fund houses too seem to be excited about the asset class. Religare Mutual Fund has already moved the Securities and Exchange Board of India (Sebi) for a gold ETF and Reliance is planning to launch a gold savings fund.

“We are quite bullish on ETFs as a product but there is not much awareness right now. There are no product-pushers for ETFs as trading is done through exchanges. Around 96 per cent of investment products in India are sold on distributor recommendations. However, with the Sebi ban no entry load, gold ETFs will find more acceptance. High net worth individuals (HNIs) will take to ETFs because of their low-cost model,” said Jaideep Bhattacharya, chief marketing officer of UTI Mutual Fund.

“Investors must allocate at least 5-10 per cent of their portfolio to gold irrespective of market conditions,” said Sundeep Sikka, chief executive officer, Reliance Mutual Fund. The total assets under management (AUM) for gold ETFs currently stands at Rs 865 crore, which is less than 1 per cent of the total AUM of the mutual fund industry.