As gold price surges, MFs hope for revival of investor interest in ETFs

Suresh P Iyengar Mumbai | Updated on July 03, 2019 Published on July 03, 2019

A net sum of Rs 94 crore was pulled out from 14 gold-linked ETFs in February.   -  Getty Images/iStockphoto

Deliver 11% returns in the last one year

The sharp rally in gold prices has revived investor interest in gold exchange-traded fund (ETF) and pushed up returns of these investments being managed by about 12 mutual fund houses.

Assets under gold ETF have gone up to ₹4,606 crore in May against ₹4,594 crore logged in April.

After remaining stagnant for quite sometime, the returns delivered by these schemes have crossed 11 per cent in the last one year with steady rise in gold prices.

Reliance ETF Gold BeES, the largest in the category with an asset under management of ₹2,290 crore, was up 1.76 per cent to ₹3,015 on Wednesday, while HDFC Gold ETF and Quantum Gold ETF increased 2.22 per cent and 1.58 per cent to ₹3,116 and ₹1,498, respectively.

Invesco India Gold ETF rose five per cent to ₹3,200 and Kotak Gold ETF jumped 1.68 per cent to ₹297.

Reliable alternative

The recent spike in global gold prices and rupee depreciation have pushed up gold prices in India. Unlike other commodities, the demand for gold peaks whenever their is a spike in prices as consumers think the yellow metal will rally further and turn out-of-reach for them.

Chirag Mehta, Senior Fund Manager, Quantum Mutual Fund, said ample liquidity, transparent pricing mechanism and the convenience of holding the metal in a demat account have encouraged investors to consider ETF as an alternative to buying gold in the physical form.

Uncertainty in global economic growth and the trade war between the US and China bode well for investment in gold. World over, the central banks have adopted an accommodative policy to boost economic growth, Mehta said.

Hedge against inflation

While keeping the key policy rates unchanged at its June monetary meeting, the US Federal Reserve had hinted at possible rate cuts later this year for the first time in more than a decade if the economic outlook weakens. With the possible cut in US interest rate, the inflation may move up and result in real interest (adjusted to inflation) rate turning negative. This will push up gold, which is considered a hedge against inflation,, said Mehta.

Kishore Narne, Head of Commodities and Currencies, Motilal Oswal Financial Services, said falling interest rates in the backdrop of anaemic growth and trade war along with the addition of geopolitical threat in West Asia have created a perfect scenario for gold bulls.

The momentum in gold prices would continue with a potential target of ₹36,000 per 10 gm by the year-end and ₹40,000-45,000 by 2020 appearing very much possible, he said.

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Published on July 03, 2019
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