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Gold ETFs catching investor fancy

Apart from buying physical gold, investing in gold schemes of mutual funds is also fast catching up with retail investors in India. Sachin Kumar reports. How they stack up

india Updated: Dec 26, 2011 21:56 IST
Sachin Kumar

Apart from buying physical gold, investing in gold schemes of mutual funds is also fast catching up with retail investors in India.

Asset under management (AUM) of gold exchange-traded funds (ETF) schemes of mutual funds has doubled to Rs 9,500 crore in November 2011 from Rs 4,800 crore in April 2011, while AUMs of other schemes such as equity, income and balance funds have witnessed decline during the same period, according to data by the Association of Mutual Funds of India.

Gold ETFs are open-ended mutual fund schemes that invest money collected from investors in gold. These are passively managed funds and are designed to provide returns that would closely track the returns from physical gold in the spot market.

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"Increased interest of investors is because of better returns offered by these schemes compared to other investment options," said Arindam Ghosh, vice-president, head, retail sales, JPMorgan Asset Management India.

"In India where investment in gold is done by buying jewellery, the increase in gold AUMs also shows the emergence of gold as an asset class," he said.

Because of the volatility in stock market due to the sovereign debt crisis in the euro zone and slowdown concerns, gold has emerged as one of the best options for investors to put their money.

Since the start of the current calendar year, Gold prices have gone up from Rs 20600 in January to Rs 28, 000 now, showing an appreciation of around 40%, while the benchmark Sensex of the Bombay Stock Exchange (BSE) has fallen around 22% during the same period.

"Along with better returns, advantages of gold ETF schemes such as no concern about purity and security, low-investment ticket size have also attracted retail investors," said Chirag Mehta, fund manager, commodities, Quantum Asset Management Company. "Investors are becoming more aware and we are seeing good demand for gold ETFs from smaller cities also."

Compared to other mutual fund schemes, gold ETFs have small investor base as these schemes are relatively new and hit the market 2007-08.

Gold ETFs have advantages such as there is no worries of storage or theft because they are kept in demat form and can be traded through a registered broker.

Also no depreciation when one sells the units and can be bought in units of as low as one gram or even half a gram.