Mumbai: The number of investors at Reliance Capital’s gold exchange traded fund (ETF), India’s third-biggest gold fund, have more than trebled since March, as a wobbly global economy makes stocks and bonds unattractive, a top company official said on Tuesday.
“This is an encouraging trend especially since the industry has been witnessing negative growth in folios,” Sundeep Sikka, CEO at Reliance Capital Asset Management, told Reuters.
“Retail investors don’t need to have a demat account and can invest in this fund directly through the online and physical application mode,” he said adding the total number of investors in the fund have risen to 311,000 from 88,000 in March 2011.
Investors have been scouting for alternatives from sagging stock markets, steady bank rates and government bonds, creating a global macro economic environment which is “very conducive” to higher gold prices, Sikka said.
With about $438 million in total assets under management (AUM), the fund is part of financial services firm Reliance Capital . Indian gold exchange traded funds’ asset under management stood at $1 billion till March 2011, Sikka said.
“This is testimony to the fact that retail investors have accepted this product wholeheartedly and are comfortable with investing in gold in a paper form,” said Sikka. Gold has offered attractive returns of more than 25% since early 2011.
Global gold prices eased a tad from a record high on Tuesday evening, as improved risk appetite took some steam out of the precious metal’s rally. Prices have gained more than 8.5% in the past six sessions.
Gold ETF forms a small portion of the India’s total demand of around 800-900 tonnes. Total holdings were a little over 15 tonnes as of February 2011.
India, whose appetite for gold dates back centuries, imported a record 958 tonnes in 2010 and a recent Reuters poll forecast imports to fall by 12% in 2011. The Bombay Bullion Association’s forecast in the poll was 950-1,000 tonnes.
Indians, the biggest consumers of gold, buy the yellow metal during festivals like Dhanteras and Deepavali, falling in October, because they consider them auspicious times for gifts and investments.
Sikka said investors have the flexibility of investing a minimum of Rs100 per month, making it the most affordable way of investing in the precious metal.
The ease of investment in the Gold Savings Fund via systematic investment plan helps investors in the accumulation of gold, driving inflows into the yellow metal, he said.
Sikka forecast a “robust” demand for gold in the second half of 2011, saying a fundamental weakness in the US dollar and the euro remained that supports gold as an alternative currency.
“Again, negative real interest rates provide favorable environment for higher inflation expectation. Gold is seen as excellent hedge against inflation and continues to thrive during higher inflationary environment.”
Investment demand in India grew by a whopping 78% to 108.5 tonnes, while jewellery demand slowed by 17% to 139.5 tonnes in the second quarter.
Holdings of the world’s largest gold-backed ETF, New York’s SPDR Gold Trust dropped 0.49% on Monday from Friday, while that of the largest silver-backed ETF, New York’s iShares Silver Trust rose 0.19% during the same period.