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February 23, 2009 |
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Commodity Online
The month of January did not hold any promises for the Indian Exchange traded Funds as they rose a marginal 1.1 percent on to 5.39 tonnes as Gold touched a high above the Rs 14,000 per 10 grams mark.
Fund analysts believed that the collections, if not rising rapidly, are more or less stable and definitely a safe haven for investment, given the stability the funds have been portraying. A weak rupee and prices at Rs 14,500 per 10 grams at the end of the month showed increased investments in the ETFs.
Although Gold collections under ETFs are growing, they remain miniscule against India’s imports of 700 billion. All the five Gold ETFs in India today have holdings of 5.3 tonnes of gold only.
But it is the confidence of investors in Gold at large and the Exchange Traded Funds backed by the yellow metal. January was also a success story as globally ETF Gold holdings climbed 105 tonnes to 1,260 tonnes, up 9 percent on the month. The year 2008 saw a total gain of 283 tonnes which means an average rise of 23.5 tonnes per month.
Compared to this the January ETF collection is a whopping four times that of 2008 average monthly figures.
If global financial and economic conditions remain gloomy and continue to slow down then ETFs are likely to come out as the big winners as investors seek safe haven and Gold is dearest in times of crisis.
On close regional observation, the United States accounted for 61 percent of the gain, United Kingdom 24 percent and Switzerland 11 percent. This rise in ETF holdings shows the confidence and trust investors have on the metal. Gold’s climb for sometime now looks healthy and purposeful, backed by sound fundamentals unlike the dollar’s rise.
What would be disastrous to these funds is if and when this global crisis begins to cool then investors are likely to turn to other more profitable assets and lead to selling. Of course ETF investors are generally there to stay but one never knows the how enticing the riskier but profitable assets can be.
Is it illiteracy which is stopping Indian investors from putting their money in ETFs. Maybe, to a certain extent.
One factor is clear that Indians traditionally love to have gold in their homes rather that possessing a piece of paper about their ownership of gold.
Another factor blamed for gold ETFs’ poor show in India is the need for a demat account for investors to buy ETFs.
In India, demat accounts are not very common unless you are living in big cities and you are into equity markets. Except in Gujarat, a state flooded with investors, India’s no other state is much aware of demat accounts and equity market.
Another factor is that Gold ETF units are bought and sold on stock exchanges like shares. But brokers are not interested in chasing small clients, who buy small quantities every month. And many are not well-versed with this process.
Another major reason is lack of distributor enthusiasm. The mutual fund industry is driven by distributors. And they get commissions for selling every product, except gold schemes. That’s why no one recommends it.
Investment advisors and distributors blame it on lack of investor awareness.
Most financial planners recommend gold ETFs to physical gold. The savings start right from the purchase stage. All sellers, including banks, charge a commission on the actual gold price. This can be 1-5 per cent.
In case of an emergency, the real value of gold cannot be realised. Banks don’t buy back, they only lend against it. Jewellers buy it at a discount. Gold ETFs have none of these problems.
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