New Delhi: Gold exchange traded funds (ETFs) are fast emerging as a lucrative investment avenue apart from mutual funds, stocks and bonds, though they still need to go a long way to catch investors’ fancy.
So far two asset management companies, UTI Asset Management Co. Pvt. Ltd (AMC) and Benchmark Asset Management Co. have launched their gold ETFs, which have been listed on the National Stock Exchange of India (NSE) with decent response from investors.
“The response to the two gold ETFs, launched by Benchmark and UTI, can be considered enthusiastic as 41,000 investors have applied, and have pumped in about Rs235 crore,” Sandeep Nanda, marketing director at investment consultant firm Security Investments Ltd, said.
“This will pick up more if and when these mutuals succeed in rewarding investors,” he added. Gold ETFs cater to persons who want to invest and trade in gold in the demat form thereby eliminating the cost and risks associated with physical gold investments.
In India, gold investments are most often made in the form of illiquid jewellery or biscuits.
Golden opportunity: In India, people usually buy gold in the form of biscuits or jewellery, which are illiquid in terms of investments.
The two gold ETFs, which have been listed on NSE, are witnessing a slow but strong response with decent trading turnovers.
Benchmark’s Gold BeES on Monday closed at Rs921.58, up 1.26% with a traded quantity of 3,411 units, accounting for a turnover of Rs31.45 lakh. UTI’s Goldshare ended at Rs919.39 up 1.05% on Monday on NSE with a turnover of Rs1.43 crore.
However, some market observers have questioned the relevance of gold ETFs for retail investors before making them an important part of their investment portfolios.
According to Security Investments, investors’ preference for a gold ETF would depend on the returns it generates, which should be at least at par with debt funds.
Moreover, an ETF generally quotes at a slightly lower level in the market than its units’ underlying asset value.
In the international market, gold price moves in a direction opposite to that of dollar valuation. “If this trend continues, ETF would certainly emerge as a strong asset class sooner than later,” Nanda said. Gold ETFs launched in Australia, USA and South Africa took time to get popular among investors, AMC chairman U.K. Sinha had said earlier.
Meanwhile, a lack of awareness and the prerequisite of holding a demat account are among key factors for the slow response towards these funds in India so far.
People willing to invest in gold ETFs can enter either during the NFO period or buy units once the fund gets listed on the bourses.
One important thing that gold ETF investors need to remember is that redemption does not translate into physical delivery of the gold. Therefore, buying gold with the redemption proceeds would be at a difference in the price quoted by the jeweller or bank and the price of the units sold by the investor.
This is because the price of the ETF units is inclusive of expenses incurred in procuring and storing physical gold and there is also a brokerage cost of trading in the ETF.