Gold ETFs see highest ever monthly inflows

Gold ETFs see highest ever monthly inflows

Gold exchange–traded funds (ETFs) continue to rise in popularity. According to data provided by the Association of Mutual Funds in India (Amfi), the industry body of the 6.42 trillion Indian mutual fund (MF) industry, gold ETFs recorded their highest monthly inflow ever. A total of 1,234 crore came into gold ETFs in September alone. This is more than half of what they collected throughout the calendar year 2010. “Due to the approaching festive season, investors have bought gold ETFs. Also, many investors seem to have bought gold after the recent correction," says Kapil Mokashi, assistant manager-equity advisory, Sharekhan Ltd.

But that is not to say investors are merely investing in gold ETFs. A total of 246 crore also went out of gold ETFs in September; their second highest monthly withdrawal ever (the highest outflows from gold ETFs took place in August 2011 to the tune of 363 crore). Overall, gold ETFs saw its highest ever net inflows (more money came in than went out).

One of the main reasons behind the surge in gold inflows has been the gold fund-of-fund (FoF) schemes. These MF schemes solicit money from investors much like any other MF scheme and then invests the proceeds into gold ETFs. Launched in February, Reliance Gold Savings Fund (RGSF) was the first of the lot. Subsequently, fund houses such as Kotak Mahindra Asset Management Co. Ltd and Quantum Asset Management Co. Ltd, and more recently SBI Funds Management Co. Ltd and HDFC Asset Management Co. Ltd also introduced their gold FoFs. “The response to these funds has been fantastic", says Srinivas Jain, chief marketing officer, SBI Funds Management that collected 450 crore in its just concluded new fund offering of its gold FoF. Jain says that the fund house received yet another 50 crore on the first day the scheme reopened for ongoing sales.

RGSF gets 300-350 crore of inflows every month and claims to get about 50,000-70,000 new subscribers every month since its inception. While Reliance Gold ETF has 64,000 investors at present, RGSF has 380,000 investors in its fold.

“Many investors do not buy ETFs because you need to open a demat account. Distributors too don’t sell them as they are available on stock exchanges and therefore investors have to go to their stock brokers", adds Jain.

In the midst of a heavy rush to buy gold MFs, some investors have also preferred to exit. In September, international gold prices fell to $1,662 per ounce, down 11% from $1,826 per ounce at the start of the month. Says Dhruva Raj Chatterji, senior research analyst, Morningstar India, a Mumbai-based MF tracking firm: “Since gold prices corrected sharply in September, we have seen that investors have booked profits in gold, especially those who had invested long time back." That perhaps explains a bit of a surge in the outflows too from gold ETFs.

Commodity experts, however, believe that the gold may become a bubble and that investors should not anticipate gold prices to rise for long. Kunal Shah, head-commodities research, Nirmal Bang Securities Ltd, says that many investors believe that gold prices cannot possibly go down, “which is a fallacy".

“China is one of the largest consumers of commodities. However, deteriorating economic conditions in the US and Europe will dent China’s exports to these countries, which will bring down commodity demand and therefore its prices," says Shah, who believes that it would be prudent for existing investors in gold to book profits going ahead and reallocate to assets that are underweight in their portfolios.

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