COIMBATORE: It took more than four years for gold exchange traded funds (ETFs) to get past the Rs 4,000-crore mark in assets under management (AUM). But gold funds, its much younger sibling, which invests in gold ETFs, have grown at frenetic pace and have accumulated net assets of over Rs 1,800 crore in just six months. The category itself came into existence only in the early part of 2011.
Gold funds have emerged as a favoured investment choice for those taking exposure to the yellow metal largely due to the convenience it offers . While investors must have a demat account to invest in gold ETFs, there is no such requirement for gold funds. Moreover, investors can do a SIP (systematic investment plan) with gold funds.
"It has become a huge hit with retail investors. Gold funds are acting as a catalyst for gold ETFs," says Lakshmi Iyer, head, fixed income and products, Kotak Mahindra MF. "The trend shows that investors have warmed up to gold funds," says Dhruva Raj Chatterji, senior research analyst , Morningstar India, an investment research firm. Though there are about 1.8 crore demat accounts in the country, only 40% are estimated to be active. Despite their growing popularity in recent months, gold ETFs had their own limitations since it is not possible to do SIPs with them. "Gold funds have emerged as a preferred investment channel for gold because of the SIP option," says Himanshu Vyapak, deputy CEO, Reliance Capital Asset Management .
Gold funds would be able to grow their assets at a much faster pace than gold ETFs and have the potential to become a large investment category, say industry officials. The category is seeing average inflows of Rs 250-300 crore every month, they say.
This may be largely because of the surge in prices of gold, which has trumped other widely traded asset classes, in the short and the long run. While gold funds have dropped 4.3% in the past month (till October 7), they have topped performance charts gaining 32.7% in the past year. The category would get stable inflows as gold remains a popular investment tool, say officials.
With the yellow metal also turning a lot more volatile, investors would be able to capture the price movements better through an SIP, say experts. However, investors have to shell out a little more for availing the convenience of a gold fund. Since it is essentially a fund-of-fund , charges tend to be a little higher. The expense in a gold fund is capped at 1.5% while in gold ETFs it is 1-1 .2% of investments .
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While investors must have a demat account to invest in gold ETFs, there is no such requirement for gold funds Gold funds would be able to grow their assets at a much faster pace than gold ETFs and can become a large investment category But expense in a gold fund is capped at 1.5% while in gold ETFs it is 1-1 .2% of investments
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