Fund houses try to lure investors with gold ETFs

Many mutual fund houses are planning to launch gold exchange traded funds (ETFs) to cash in on the buzz around gold.

At least four fund houses are planning to launch gold funds or gold ETFs. HDFC Mutual Fund and ICICI Prudential filed draft offer documents with SEBI in September. Religare Mutual Fund is expecting SEBI approval for its gold ETF. Principal PNB Mutual Fund is planning to apply to SEBI for a gold ETF to be launched in three months, said Mr Sudipto Roy, Business Head of Principal AMC.

Gold prices were at Rs 15,865/10 gm on Wednesday closing. According to a senior industry analyst, it is only the euphoria around gold that might be prompting fund houses to launch these gold ETFs as fundamentally one does not enter a market that might be in danger of peaking. “For example, in 2007, when the market was already at the peak, we saw a large number of equity funds being launched although it was not the right time to enter the market at such high peaks,” she explained.

Gold prices have been going up in the past few months and fund houses are looking at this as an opportune time to launch gold ETFs, said Mr Krishnan Sitaram, Head of Crisil Fund Services, CRISIL. This would not only complete the product suite of these fund houses but is also a way of tapping the current investor interest in gold, he added.

While there is a section of analysts who feel investors would stay away from investing in gold ETFs at this level, some, such as Ms Lakshmi Iyer, Head of Products of Kotak AMC, feel that there is a case for investors to enter even now as gold prices could increase further. “Maybe they could wait for price dips at some intervals and then invest,” said Ms Iyer.

However, some mutual fund houses are putting their gold plans on hold. Tata Mutual Fund that had plans for a Gold ETF has shelved them. “Gold has already touched a peak and now there is lack of appetite in the market. At this point of time it doesn’t seem appropriate to launch a gold ETF,” said a Tata Mutual Fund spokesperson.

Fresh inflows into the six existing gold ETF schemes were minimal this August, around Rs 16 crore, against Rs 45 crore in July, and Rs 34 crore in June. But the assets under management of these schemes have risen since June from Rs 844 crore to Rs 904 crore in August, largely due to the rise in gold prices.

(Source: The Hindu BusinessLine)