Gold rush drives investors to ETFs

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The recent surge in gold prices has not dampened investor sentiment in gold exchange traded funds (ETFs). Even when gold prices hit record highs in November, investors bought ETFs worth Rs 95 crore - higher than the Rs 57 crore in October. Mrinalini Krishna and Sweta Sriram report.

The yellow metal is still the investors' darling. Even when gold prices in the bullion markets surged to all-time high prices above Rs 18,000 per 10 grams, investments in gold ETFs   remained strong.

In the last three months, inflows into ETFs have tripled, led by demand from retail investors. And the rush for these instruments continues to be strong.

Says Sanjiv Shah, ED, Benchmark AMC, "In the last three-four months, if you look at it our investor base has really tripled. The demand from the retail sector in India is just ballooning."

But why this rush? Experts point out that as the price of gold rises, so does the returns given by the gold ETFs.

Over the last one year, gold prices have risen 36%; over the same period, returns from gold ETFs came in at 38.05%.

Even in the short term, returns from the instrument have been substantial - 9.63% over the last three months, and 15.72% over the last six months.

The idea of owning gold without having to take physical delivery of the metals has also grabbed investor attention, adding to the demand.

"I would say the gold ETFs as a class of products has been able to make a mark on the minds of the investors," says Sanjay Sinha, CEO of DBS Chola AMC. "What they see in gold a convenience brought to them through this instrument and the fact that it is a store of value at an affordable cost."

But strong returns and convenience are not the only reason. Experts say gold ETFs have given investors an opportunity to diversify their portfolio, and provide a hedge risks against other instruments like stocks.