NEW DELHI (Commodity Online): Are gold exchange traded funds (ETFs) beginning to crowd India, one of the largest bullion markets in the world? Several big companies are launching new Gold ETFs to cash in on the investor frenzy surrounding the paper gold market in India.

On Thursday, diversified financial services company Religare announced the launch of a new bullion exchange traded fund, named Religare Gold ETF. The new gold fund is the seventh Gold ETF to hit the Indian market. Another corporate major Tata Group is also said to be finalizing its Gold ETF under the Tata Mutual Fund.

Some analysts said the entry of new Gold ETFs is crowding the already thin investment market for such funds in India.

India's gold volumes under the exchange-traded funds rose 55 percent on year to 8.265 tonnes in December, 2009.

“Gold collections by Gold ETFs in India are negligible compared to the physical trade of some 700 tonnes of the yellow metal. Therefore, I do not think the new launch of gold exchange traded funds is going to make much of an impact,” said Vineet Mehta, a bullion analyst based in New Delhi.

But bullion optimists said the entry of new gold funds will expand the investment potential for Gold ETFs in India.

According to Saurabh Nanavati, chief executive officer of Rellgare Mutual Fund that launched the Religare Gold ETF said that gold is a hedge against inflation and a falling US dollar in emerging markets like India which are facing inflationary Issues due to ample liquidity created by global central banks.

Here are the details on Religare Gold ETFs:

**The new gold fund scheme seeks to generate returns that closely correspond to the returns provided by investment in physical gold in the domestic market, subject to tracking error.

**The fund will be managed passively with investments in physical gold and will endeavor to track the performance and yield of its underlying asset viz, gold. Investments in physical gold will be made regardless of any investment merit.

**The fund intends to follow a fully invested approach and will have a minimum exposure of 90% of its assets in gold and gold bullion at all times, one unit of Religare Gold ETF will represent 1 gram of gold.

**The fund may buy and sell gold at different points of time during the trading session which may or may not correspond to the closing price of gold, maintain cash to meet its liquidity requirement, which may result in the scheme having tracking error and to that extent the performance of the scheme may not commensurate with the performance of Its underlying asset. However, the fund manager will try and minimize the tracking error to the fullest extent possible. The fund is benchmarked to the price of gold.

Nanavati says investors keep asking whether this is the right time to invest in Gold. “From my perspective, gold is a necessary allocation to everybody`s portfolio to the tune of 5-10% of their portfolio. As regards the US dollar, over a longer period with India and China GDP growth being in excess of 6%+ and US growth not expected to cross 2% in the near future, the dollar is bound to depreciate fairly sharply over the next 5 years against emerging market currencies. Gold will therefore, act as an insurance to retail investor portfolios,” he added.

Launched in 2007, Gold ETFs in India are now managed by seven fund houses that include Religare Mutual Fund, State Bank of India Mutual Fund, Benchmark Asset Management, UTI Mutual Fund, Kotak Mahindra Mutual Fund, Reliance Capital Asset Management and Quantum Mutual Fund.

R S Srinivas Jain, senior vice president and chief marketing officer of SBI Mutual says that the bank is bullish on the growth of Gold ETFs in India. "We feel that India has a great potential for more Gold ETFs. We are planning to raise good money through the exhange traded fund in gold," he said.

The SBI Gold ETF is benchmarked against the London AM fix price - spot price set in the morning - and the gold will be imported by Bank of Nova Scotia on behalf of SBI Mutual.

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.

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.

However, these funds, having been battered last year, have staged a sharp rebound since early December. Both DSP BlackRock World Gold Fund and AIG World Gold Fund have delivered a 35 per cent return from early December, tracking the simultaneous recovery in equity markets as well as gold prices.

Post your comment  (5)

Connect:

Post to Twitter

Post to Facebook