HNIs are heroes of gold-ETF saga

The run-up in gold prices did not quell investor appetite for the precious metal. It only turned to exchange traded funds. Demand from gold fund-of-funds and high net worth individuals appears to have driven the rise in gold ETF assets.

According to half-year data for gold funds released by AMFI, the total number of folios under gold-ETFs stood at 4.28 lakh accounts in September 2011. This was 75 per cent higher than the total accounts in the same month of 2010. The assets under management of gold-ETFs schemes grew 187 per cent to Rs 8,184 crore.

In the above period, gold price in the domestic market had rallied 35 per cent to around Rs 2,563/gram. The net inflow into gold ETF schemes during the period was Rs 3,959 crore.
HNIs queue up

Who is buying into gold-ETFs? Though retail investors continue to be the single largest group of investors (4.12 lakh accounts) under gold-ETF schemes, there has been a rising interest among High Networth Individuals (HNI) for these funds.

From 5,433 HNI accounts in September 2010, gold-ETFs reported a total of 10,361 HNI accounts at the end of September 2011.

Ms Lakshmi Iyer, Head of Products, Kotak Mutual Fund, says: “A large number of HNIs who have long- term investment objective are diversifying into gold through gold-ETF schemes. The global uncertainty, the high inflation and the relative convenience of gold investment through ETFs are driving demand for gold funds.”

What of corporates?

Yet another piece of interesting data from AMFI is the number of corporate accounts under gold-ETFs. Corporate folios under gold-ETFs stood at 5,599 in September-2011, up from 3,310 accounts in September 2010.

So, are the 5000-odd corporates investing in gold-ETFs now? Maybe not, says Ms Iyer. “A lot of these are accounts from gold fund-of-fund schemes.” Some of these f-o-f schemes account for about 50 per cent of AUMs of some gold-ETFs, she added.

Gold fund-of-fund schemes are relatively less rewarding for a gold investor compared to gold-ETFs due to higher fund-management costs. But promotions by AMCs appear to have made them successful.