While gold exchange traded funds have seen 10-11% dip in returns, equity ETFs have given 24%
The equity-linked and other non-gold related Exchange Traded Funds (ETFs) have been attracting greater interest from investors during 2014-15 and this trend is likely to continue, according to experts. Gold ETFs on the other hand have lost their charm, thanks to the dip in gold prices.
Equity-related ETFs are riding on the bull-run witnessed in the equity markets.
"The phenomenal growth of about 24% posted by equity related ETFs is the main reason for the increasing interest in equity-related ETFs,'' explains Renjith R G, national head – distribution, Geojit BNP Paribas. In fact, certain ETFs representing the banking sector are said to have posted returns as high as 38%.
Gold ETFs, on the other hand, have seen a 10-11% dip in returns during last year following the fall in gold prices. "There have been instances of investors even cancelling the gold Systematic Investment Plans (SIPs),'' says Renjith.
The shift in investor preferences is clearly seen in the numbers. According to the Association of Mutual Funds of India (AMFI), the assets under management (AUM) for gold ETFs fell to Rs 6,654.87 crore in March 2015 compared to Rs 8,676.32 crore in March 2014. In contrast, the AUM of ETFs (other than gold) increased to Rs 8059.93 crore in March 2015 from Rs 4528.47 crore in the corresponding previous year. (See Table)
The number of folios of gold ETFs decreased to 4,65,765 in March 2015 from 5,03,613 in March 2014 while the folios of ETFs (other than gold) increased to 2,33,961 in March 2015 from 2,02,228 in March 2014.
The gold ETFs have been losing its sheen mainly because the dip in prices of the underlying metal. "Gold prices have been hovering in the range of $1,180-1224 per ounce due to the uncertainty over the US Fed rate hike. This had a negative impact on prices of bullion and other commodities,'' says Hareesh V, Research Head, Geofin Comtrade.
In India, the gold prices in the futures market is currently ruling at Rs 26,900 per 10 gm. "The Indian prices have been supported by the weakening of the rupee,'' says Hareesh.
Given the bullish outlook for the equity markets, the uptrend in the equity-related ETFs is likely to continue. "The recent correction in the market is temporary and has given an opportunity to further attract investors. We are bullish about the equity markets,'' says Renjith.
While India is traditionally a country where investors prefer to invest directly in equities, but increasingly retail investors are opting for ETFs as the mode of investment given the benefits of ETFs. "As financial literacy continues to grow, we believe that the growth in assets for ETFs would only enhance. ETFs are nothing but beta market ownership. Hence it's a very convenient entry level strategy for any investor seeking potential wealth creation through investments in equity market," Lakshmi Iyer, CIO (Debt), Kotak Mutual Fund. (See box for advantages of investing in ETFs)
While the returns could be higher if one invests in individual stocks, but it is not easy to find the right stock. "Instead of trying to time the market or choose a sector or a stock, ETFs are the best and safest bet for the retail investors,'' advises Renjith.
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