It’s not only physical gold but even Gold ETFs have begun to glitter in India. The growing popularity of Gold ETFs could be gauged by the two and a half times increase in assets under management (AUM) of such schemes in the last twelve months.
AUM in gold ETFs have gone up to Rs 9,516 core at end March this year, a 153 percent increase over the level of Rs 3,765 crore in March 2011, latest data available with National Stock Exchange showed.
With Akshaya Tritiya - a day on which buying gold is considered auspicious - round the corner, the asset management companies offering Gold ETFs and the stock exchanges are gearing up for the increased traction (buying interest) seen on that day. The Akshaya Tritiya day this year falls on April 24.
Last year on Akshaya Tritiya day, the turnover on Gold ETFs in NSE was reportedly Rs 846 crore as compared to Rs 345 crore in 2010.
Gold ETFs as a product was introduced in India in 2007. These are instruments that trade like shares and are backed by physical holdings of the yellow metal. This financial product enables buyers to own gold without taking physical possession of it.
India’s gold ETF collections (in volume terms) are a small proportion of the national consumption of about 930 tonnes. The volume of gold ETFs had arisen to 33 tonnes in December 2011 from a level of 19 tonnes in March 2011, reflecting a 74 percent increase in nine months.
Gold ETFs have gained popularity in recent years as it has given better returns than the pure equities traded in bourses. There is also convenience of holding the yellow metal in electronic form.
For investors who have to choose between investing in physical gold like bars or coins and gold ETF’s, the latter is considered far more cost effective and safe.
Between gold ETF and ‘gold Fund of Fund’, the former is preferred as it is seen as more cost effective proposition. However, a fund of fund is still a better option than buying physical gold, say experts.