MUMBAI: India's gold exchange traded funds (ETFs) are going through a bad patch. Gold ETFs that have given great turns in the wake of plunging stock market and rising gold prices performed very poorly in India in the last few months.
Read below a report from the Times of India on Gold ETFs in India:
Gold ETFs, the best performing asset category in the last one year that gave stellar returns riding on the back of zooming gold prices, have hit a rough patch. They have landed in the bottom of the performance chart declining 0.44% in the three month period (up to May 11).
"Gold is highly sensitive to prices. Gold prices remained at high levels for the whole of last quarter. So a lot of profit booking happened," explains Lakshmi Iyer, head, fixed income and product, Kotak Mahindra Mutual Fund.
With the capital markets on the upswing investors have been liquidating gold and have started entering risky asset classes, she says. "Typically when risk aversion increases investors turn to gold as it is less volatile. We have recently experienced a reduction in risk aversion and fund flow to equity," said Swati Kulkarni, fund manager, UTI asset management company.
Gold prices historically also have a negative correlation with equity. Sensex and Nifty gained 17.4% and 15% respectively in April. But the assets managed by gold ETFs fell marginally to Rs 736 crore in March, data shows.
High prices have dampened gold purchases with no import of the yellow metal happening in February and March. "At current price levels there is a lot of stickiness (among potential investors). If there is a correction in prices gold ETFs would re-entice investors," says Lakshmi.
The country imported 30 tonnes of gold in April mainly on account of demand for 'Akshaya Tritiya', considered an auspicious day for buying the yellow metal. Gold prices also softened marginally in dollar terms in April. After opening at a high of $919.5 per ounce and touching a low of $870, they closed the month at $889. Though they fell behind equity and hybrid funds in the one month period, gold ETFs however remained category toppers for the six month and one year periods growing 26.3% and 20.7% respectively, Value Research data shows.
Gold is still a good investment option in the long run, fund managers say. "It is a good bet and returns from gold historically are much less volatile than equity and have been found less correlated with other asset classes," they say.
The yellow metal also offers the benefits of diversification to the overall portfolio and is an essential investment option during periods of uncertainty, fund managers say. Investors need a demat account for trading in gold ETFs that enable investors to buy units on the stock exchange. They are a substitute for gold and allow investors to participate in the upswing in prices without actually physically owning the yellow metal.
