MUMBAI (Commodity Online): The booming bullion business in India is attracting global investment banking giants to the country’s hot exchange traded funds (ETFs) in gold.

Goldman Sachs Asset Management (India), the global investment bank’s India fund division, is talking to Benchmark Asset Management to buy out its assets that include India’s first multi-million Gold ETF.

Benchmark was the first mutual fund that launched Gold ETFs in India, in 2007. Since then, seven more companies launched a variety of gold funds focused on the ETF market in the country.

India is the largest consumer and producer of gold in the world. India’s households are believed to be holding around 20,000 tons of physical gold. Though business in Gold ETFs has not grown big in India, its future potential is immense as several banks and brokerages have already applied for regulatory approvals to launch ETFs in various commodities including gold, silver etc.

A merger and acquisition specialist mediating the Goldman-Benchmark deal said that Goldman Sachs sees huge emerging market for Gold ETFs in India. “Gold ETFs may be a relatively new phenomenon in India. But in the next few years, India with its large bullion trading houses and active gold trading business will lead the global Gold ETFs market,” he told Commodity Online.

Some eight Gold ETFs have been performing well in India and giving excellent returns in the last four years. But the regulatory rules have so far prohibited various companies from launching ETFs in precious metals like silver and platinum.

ETFs in commodities are yet to make a deep investment sense in India, even though eight mutual funds have launched Gold ETFs in the last two years. India is the largest gold consuming and importing nation in the world and Indian households own the largest quantity of physical gold.

Mumbai-based Benchmark Mutual Fund was the first to start a gold ETF in 2007 and has the largest collection of more than 10 tonnes. The company says the investment objective of Gold Benchmark Exchange Traded Scheme (Gold BeES) is to provide returns that, before expenses, closely correspond to the returns provided by domestic price of gold through physical gold.

The Gold ETFs are listed on National Stock Exchange and Bombay Stock Exchange in India and most of them have a share size of 1 gram.

Experts say though India is the largest consumer and importer of gold in the world, the country’s Gold ETF collection is very small compared to other countries.

But with the Gold ETF investments growing 100% year-on-year, the Indian ETF market for the yellow metal is continuing to grow phenomenally in the coming years.

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.

Spurred by the boom in gold prices led by the commodities rally, several Indian companies and mutual funds are chalking out plans to launch new Gold ETFs. Recently, India’s HDFC Bank Mutual Fund launched a Gold ETF scheme. Another competitor, ICICI Prudential, is planning to come out with a Gold ETF soon. At present, India has eight Gold ETFs listed on the exchanges. Together, they have a collection of 11 tonnes, nearly doubl compared to last year.

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.

The Gold Benchmark Exchange Traded Scheme has assets worth Rs.1,506.29 crore, the highest among gold ETFs in India.
It is said that Goldman’s move to buy out a fund house that predominantly manages Gold ETFs may be inspired by the huge potential of gold fund industry in India.

India holds at least $800 billion (Rs.36 trillion) worth of gold, 11% of the world’s gold assets. Indians invest Rs.1.43 trillion in gold every year, but a minuscule portion of this is routed through gold ETFs.

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