Gold funds bring smiles on the faces of investors

Investors who put their money in gold exchange-traded funds are smiling their way to the bank.

Investors who put their money in gold exchange-traded funds (ETFs) are smiling their way to the bank. Gold ETFs have outperformed physical gold with returns of 30 per cent in a year,while physical gold has so far gone up only about 23 per cent (average on an annualised basis) in the same period.

Though physical gold has gone above Rs 18,000 per 10 grams recently,on average it was at Rs 15,400 per 10 gram in 2009 from Rs 12,500 in 2008. Dhirendra Kumar,CEO,Value Research,said,Realising better returns,now some of the gold ETFs have attracted investors to invest in ETFs more than any other funds. Recently,some exchange-traded fund companies such as Gold Benchmark,Kotak Gold,Quantum Gold,Reliance Gold,SBI Gold and UTI Gold have shown their performance with a rise of as much as 30 per cent in one years time.

Just more than two-year old gold ETFs instruments that can be traded like shares are backed by physical gold holdings. As the countrys gold collection under exchange-traded funds rose 32.9 per cent a year to 7.4 tonnes in November,industry sources said,this new segment would gain more popularity with some more funds planning to enter the market.

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In the mutual fund space,we avail only two distinct kinds of gold-related funds. The first one is gold ETFs,which closely track the price of gold itself and deliver profits and losses that mirror investing in physical gold. The second one consists of a couple of equity funds (one from AIG and the other from DSP BlackRock) that actually invest,not in gold,but in foreign gold-related stocks,like those of gold mining and processing companies, Kumar said,adding,Over the last one year,gold has gained 44 per cent (year-on-year basis),but these funds have gained more than twice that.

Kumar said,All the ETFs deliver identical returns. Unlike an investor in equity or equity-backed products,there arent hundreds of choices. Jaydeep Bhattacharya,chief marketing officer,UTI Mutual Fund said,In the long term,bulls think the metal will continue to shine. Gold has been proved to be a historic store of value and an inflation hedge. I think it is an asset class,not just a trade. As far as gold fund is concerned,for last three months and six months we have seen 6.83 per cent and 17.3 per cent rise of returns respectively in absolute term and it may be doubled on an annual basis.

Hiren Dhakan,mutual fund analyst,Bonanza Portfolio said,The US dollar and gold share universal correlation with each other. Gold isn’t a bubble. Although it has gained of late,the dollar remains weak,the stock market has run up more than fundamentals support,and a lot of people haven’t invested in gold yet. That suggests gold ETF investors should stand apart.