Indian gold ETF holdings now exceed $2.1 billion

India, despite its tradition of possessing physical gold, now has a new love, with gold ETF purchases soaring.

Investor demand for gold has not waned in India despite rising prices. Indians’ love for gold has pushed the size of assets held through gold exchange traded funds (ETFs) to an all-time high of $2.1 billion (Rs 119 billion) in the country.

The surge in the asset size of gold funds continues even as the Indian government has taken steps to direct the flow of household savings into equity, mutual funds and other financial instruments.

It is not just Indian households that are benefitting from the gold rush. Companies in India have also played a major role in the rising trend of investing in gold through ETFs, with half of the assets under management (AUM) of these ETFs held by corporates. 

According to data from the Association of Mutual Funds in India, total AUM of gold ETFs ‘til end-September was $2.04 billion (Rs 111 billion), of which corporates held gold worth $1.0 billion (Rs 59 billion). Assets swelled to $2.1 billion by the end of November.

In June, investor wealth in gold ETFs had surpassed the psychological mark of Rs 100 billion. It was just above Rs 50 billion in May 2011.

Indian plays host to as many as 25 different gold ETF schemes across 14 different fund houses. These products, which track the metal’s prices, provide an opportunity for investors to accumulate gold over a given period of time since they can be purchased in small quantities.

“With gold prices rising sharply, many retail investors have turned to ETFs as an investment and hedge against inflation. Moreover, with the country’s financial markets evolving, products like ETFs have given individuals new ways of investing,” noted Gaurav Mashrukwala, a financial planner.

He said while earlier, investors preferred to invest in physical gold, now, with higher awareness about the advantages of gold ETFs, this asset class is rapidly drawing a lot of investor attention. 

“The product comes with a high purity quotient, which is a major draw with most Indians,” he added. Mashrukwala advises people who are eager to buy gold purely from the portfolio allocation and asset creation perspective, “to buy gold ETFs. If you are buying gold to consume, that is for a marriage in the family, then you may buy physical gold. Otherwise it should only be ETF.”

Stating that physical gold is subject to wealth tax, he added gold ETFs are not subject to wealth tax. So purely, from the storage perspective as well as the taxation perspective gold ETFs score over physical gold.

In the three months of September to November, the Association has held that inflows worth nearly $182 million (Rs 10 billion) have come into gold ETFs. In 2011-12, over $657 million (Rs 36 billion) was pumped, while $410 million (Rs 22 billion) inflows came in 2010-11.

Koel Ghosh, head, (South Asia) S&P Dow Jones Indices, noted in a conference call that the growth of India’s gold ETF market has been robust over the past couple of years.

He added that the ETF market in India has grown by about 87% since September 2009, while the number of investors has grown by 71% during the same period.

Added Jodie Gunzberg, director, commodity indices, S&P Dow Jones Indices, there is significant investor interest coming up for gold ETFs in India. Stating that demand for gold varies by region, Gunzberg added in India, gold demand has increased from 46% to 55% of world demand.

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