Commodity Online
MUMBAI: After launching Gold exchange traded funds (ETFs), mutual funds companies and big corporate houses in India are setting their eyes on launching gold funds in the country.

At least four major mutual funds houses in have sought approval from market regulator Securities and Exchange Board of India (Sebi) to launch such schemes. They are include Kotak, Sundaram BNP Paribas, UTI and Reliance. While Kotak, UTI and Reliance already have a gold ETF in their kitty, Sundaram BNP Paribas is the new one in this category.

One of the major reasons that these corporate houses are rushing to launch pure play gold funds in India are the biggest revenue such funds have earned for several global companies.

Gold funds have become the biggest hit of the year with investors as they are giving unimaginable returns during the past few months and in India also more people are now banking on gold funds.

Since the world crashed into a recession, gold has been doing extremely well as a safe haven for investors. This has pushed the prices of gold above $1,000 per ounce.

Considering the fact that gold will remain as a safe haven for investors for quite some time, the outlook for the yellow metal and gold mining companies remains bullish for the foreseeable future.

In India, two prominent gold funds, DSPBR World Gold and AIG World Gold, delivered a whopping return of nearly 40 per cent in the last three months. DSPBR Gold, with a track record of over a year, fell just 12 per cent compared to a year ago levels.

This return has also been aided by the fact that the rupee has appreciated over 16 per cent in the last six months, and 28 per cent in the last year. Both these funds beat the benchmark FTSE Gold Mines index substantially, despite its being adjusted to rupee terms.

The DSPBR World Gold Fund invests over 98 per cent of its portfolio in Blackrock Gold Fund, while AIG World Gold Fund invests nearly 86 per cent of its portfolio in AIG PB Equity Gold fund. Both these funds also invest in platinum, Silver and diamond mining companies though limiting them to 9-15 per cent of their portfolios.

The return profile of both funds for the last several months has been broadly similar, as they invest in more or less the same set of same stocks.

Unlike gold ETFs, gold funds don’t immediately gain from a rise in gold prices as their performance also depends on the earnings of mining companies and on the broader sentiment towards equity markets. In that sense a rise in gold price may translate into gain for gold stocks with a time lag.

The best thing happened to gold mining companies is that the cost of production has come down due to recession while the price of the yellow metal skyrocketed.

With the costs now stabilising, the realisations may improve for these companies, which could have positive impact on such stocks.

However, investors who look for a hedge against stock market swings may be better off with Gold ETFs, which faithfully replicate short-term gold price movements.

Good fundamentals for gold, on the back of lower output and higher investment demand and an environment of escalating global uncertainty, augur well for gold-related investments at this juncture.

Mutual funds houses in India argue that launch of new gold funds will benefit a lot of new investors as companies are willing to dole out free gifts schemes to promote gold funds.

Returns on India’s six gold ETFs increased by 6 per cent during the month as the yellow metal touched a new high.

Launched in 2007, Gold ETFs in India are managed by six fund houses including Benchmark Asset Management, UTI Mutual Fund, Kotak Mahindra Mutual Fund, Reliance Capital Asset Management, Quantum Mutual Fund and SBI 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 400 tonnes annually.

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