India’s Demand for Gold Exchange-Traded Funds Rises

on Jul 2, 2012
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Assets in gold exchange-traded funds (ETFs) listed in India grew 3.4 per cent in April from a month earlier, data released by the Association of Mutual Funds in India (AMFI) showed. India’s demand for ETFs picked up last month thanks to the appeal of investing in gold during the festival of Akshaya Tritiya. The jump in buying gold funds showed a new trend in India with more individuals making investments in ETFs rather than traditional purchases of jewellery.

According to data released by the AMFI, assets under management (AUMs) under gold ETFs showed a year-on-year growth of 124 per cent. In value terms, gold ETFs on the National Stock Exchange rose to $115.8 million (6.08 billion rupees) as of April 24 from $94.3 million (4.23 billion rupees) a year earlier, while the total number of units traded grew 10 per cent to 2.2 million.

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Assets in gold ETFs, or paper gold, grew 1.9 per cent in February and 0.9 per cent in March amid stagnant prices and reduced safe-haven appeal. In April assets in gold ETFs increased to $1.91 billion (102.18 billion rupees) from $1.93 billion (98.86 billion rupees) in March. This 3.4 per cent growth is attributed to the Hindu belief that buying gold during Akshaya Tritiya helps multiply wealth. The Indian holiday has historically had impact on gold demand and prices. Buyers typically crowd into jewellers’ shops in the days leading up to Akshaya Tritiya, which this year was on April 24. But not many people did so this April as last year’s run-up in gold prices, accentuated in local terms by the weakness of the rupee, has hurt demand for physical gold and jewellers.

!m[](/uploads/story/52/thumbs/indian_jewellery_inline.png)Historically gold has been popular in India, held in the form of jewellery. But over the last several years there has been a growing awareness in the general public on gold as a financial asset. Since gold ETFs were launched in 2007, Indian consumers have taken a liking to physical gold funds. This is proved by the increasing number of Indian fund houses, such as Goldman Sachs Asset Management, Kotak Mahindra Mutual Fund, UTI Asset Management Co., Reliance Capital Asset Management Ltd. and SBI Mutual Fund, launching gold ETFs suitable for different classes of investors.

“The young generation now prefers to invest online rather than go to a jewellers, which is increasing the demand for paper gold,” Harish Galipelli, head of research at commodity brokerage firm JRG Wealth Management, said in a WSJ.com report. One of the reasons for this trend, according to the report, is that an ETF generally comprises a basket of securities, which ‎provide exposure to the market. ETFs are traded on the stock exchange similar to a company share and consumers not only prefer to purchase from the comfort of their homes but also see better value in ETFs as they provide security and eliminate the labour costs involved in jewellery being made, which are usually not translated, or at least not fully, as value-added on any resale, with only the value of the actual gold being recuperable.

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