Commodity Online
By launching the Gold exchange-traded fund (ETF), State Bank of India Mutual Fund becomes India's sixth mutual fund firm after Kotak Mahindra, UTI, Quantum, Benchmark and Reliance to join the gold bandwagon. In the initial period, it expects to collect 1.5 billion rupees to 2.0 billion rupees of investments.

The Gold ETF from the Mutual Fund division of SBI is the sixth exchange traded fund in the yellow metal to hit the Indian markets. Banks and financial institutions are getting ready to launch new Gold ETFs and gold schemes as India is the largest consumer market for gold in theh world.

Speaking about this plan, R. S. Srinivas Jain, senior vice president and chief marketing officer, SBI Mutual, said, "I think ETFs are the ideal investment options for investors. Gold being the oldest precious commodity, it is an easier and convenient way of investing. We started thinking of this option around two years ago and found that gold ETFs are the biggest form of non-physical format. It is, in fact, the most mature way of investing".

The number of investors for SBI Mutual is close to 56 lakh and according to Jain, they thought of providing this opportunity for their investors by taking care of them this way. "Since during this uncertain period of economic crisis gold is the defensive hedge, we thought of taking care of our existing customers this way", says he.

He adds, "Gold is a real asset and has stood against time since last 5000 years. It can be hedged against all commodities and the most important aspect here is that gold has a very low correlation between other products".

This fund house is a joint venture between State Bank of India and France's Societe Generale Asset Management.

With the gold prices escalating each passing hour, investors have started to show a totally new-found interest in these gold funds. ETFs have given an impressive more than 20 percent returns in the last one year.

Talking about this, Rajan Mehta, executive director, Benchmark AMC, says, "It's a great convenient vehicle for the clients to get gold exposure. Though a lot of educational material has been launched in the market about ETFs, a lot still needs to be done. I think it's a great way of making people aware about the funds".

He adds, "As and when more awareness will spread, more interest will be generated towards such funds. I think brokers are doing a great job of making their clients aware of these mutual funds. Gold is available and one can cash in upon it and though there are no fixed guarantees on these funds, more people are going for it just to get an exposure in gold prices".

The uncertainties in the economic environment is another reason why investors are parking money in gold, as it has always been considered a hedge against uncertainty in troubled times, opine both Jain and Mehta.

However, Kartik Jhaveri, director, Transcend Consulting, a wealth management firm is slightly apprehensive about the entire ETF scenario. He says, "It is because of the economic uncertainty and the recessional market that everybody is jumping onto this bandwagon. People need to invest their money somewhere to keep their assets safe against this inflation. Also, people are quite discerning about buying physical Gold and thus, going for this non-physical form to get their profits".

He warns investors saying that it is not a totally foolproof form of investment. Even though gold prices are going higher and higher, and people are getting their returns in 2-digits, Jhaveri still suggests that one should not put their entire portfolio on these funds. "Looking at the present volatile nature of the economy, it is advisable to put in a smaller percentage so that it doesn’t destruct your wealth".

It is because of the increasing demand of gold that investors are choosing for gold ETFs and talking about this latest mutual fund, Jhaveri says, "I think that products are launched in the market depending on the flavor and mood of the season. I still feel that gold is not running away anywhere and it cannot give full 100 percent returns. Though people are getting their 2-digit returns right now and gold is doing every possible thing, there are possibilities when gold might not be able to do anything in the coming months".

However, investors are quite realistic about their gold ETF returns and despite warnings from financial advisors, including them in their portfolio because of its diversified nature.

Launched in 2007, Gold ETFs in India are managed by five fund houses including Benchmark Asset Management, UTI Mutual Fund, Kotak Mahindra Mutual Fund, Reliance Capital Asset Management and Quantum Mutual Fund.

Though Gold collections under the ETFs are growing in India year on year, they remain negligible when compared to India’s imports of around 700 tonnes annually.

ETFs track the performance of a particular index; their base price is basically equivalent to the value of the index. ETFs are not limited to gold. There are ETFs of almost all metals and most-traded agro-commodities. Eg: Gold, silver, copper, wheat, corn, Cotton etc. At present, in India gold is the only commodity ETF.

Analysts say those who made money from gold ETFs in the past few months also should thank Indian rupee. Because, rupee’s steady depreciation helped investors gain handsomely from gold ETFs. Over the past year, international gold prices have headed nowhere and are actually down by about 3 per cent. But the gains came from the rupee fall.

In India gold prices rose roughly 40 per cent the past year. Going forward, therefore, returns for Gold ETF investors will depend not only how global gold prices fare, but also on the direction of the rupee against the dollar.

Apart from Gold ETFs, Indian investors looking for gold-related investments have the option of global gold equity funds, which invest in the stocks of gold mining companies.

With inputs from a research report from India Gems & Jewellery Export Promotion Council

Post your comment  (0)

Connect:

Post to Twitter

Post to Facebook