Gold ETFs have gained momentum only over the past two years. With investors getting comfortable owning gold in paper format, the Gold ETF category will grow bigger.
In comparison to equity markets, gold has been a consistent outperformer since the global credit crisis of 2008, which in turn has enhanced investor interest in it. Between August 2008 and July 2011, gold has given an annualized return of 22.91 percent compared to 9.3 percent by Nifty. According to Mukesh Agarwal, Senior Director, Crisil Research, gold is considered to be one of the safest havens for investments and typically, during uncertain times, gold acts as an effective hedge.
In India, Gold ETFs and Gold FoFs (fund of funds) were launched by AMCs to provide returns that closely correspond to the returns delivered by gold as an asset class. Though the first Gold ETF was launched in March 2007, the product gained momentum only over the past two years. Currently, in India eleven fund houses offer eleven Gold ETFs and three Gold FoFs.
According to Crisil, the average AUM under this category has grown exponentially to Rs 6000 crore as on June 2011 from Rs 960 crore in March 2007. Globally, AUM of Gold ETFs has grown over US$ 100 billion as on June 2011 as against US$ 14 billion in April 2007.
Outlining the advantages, Mukesh said, “Gold ETFs provide investors with benefits like affordability, high liquidity, transparent pricing and low holding cost. With an additional advantage of being tax-efficient, Gold ETFs are a more efficient way of owning gold.”
Meanwhile Tarun Bhatia, Director-Capital Markets, Crisil said in the last three to four years, many Indians have become comfortable owning gold in paper format and this trend could only gain momentum. “As Indian investors mature, they will look at diversification of their investments and gold in ETF format will strengthen their portfolios,” concludes Tarun.
