As gold funds rose 30% in last 12 months, how many investors benefitted from the gold rush?

Not many investors benefitted as gold funds continue to be under-owned with 0.25% of MF investor money in this category, underlining the importance of right asset allocation

Kumar Shankar Roy Aug 14, 2019

Gold ETFsDomestic gold price keeps on rising, and investors are having a FOMO feeling. FOMO means Fear Of Missing Out. At a time when equity markets have more or less stayed flat, the domestic price of gold has jumped over 20% in the last three months, while clocking 30% gain in the last 12 months. This has meant that gold funds, including gold savings funds and gold exchange traded funds (ETFs), have become best performers in this period. As the world worried about the U.S.-China trade war implications, slowing global growth and fears of another Lehman like moment, the risk aversion has helped spruce up investor demand for gold on a global basis. But has the Indian MF investor actually been able to get the benefit of the gold uptick? No. The money in gold funds is just 0.25% of the to mutual funds AUM (assets under management) in the industry. Read on.

Shiny returns delivered quick

Gold as an asset class was having another quiet year. But, something changed around six months ago. What turned out to be a full-blown rally for gold was not given its due importance at first. And now, gold is having a field day while other asset classes and respective investors sulk. Gold has returned great returns in a quick time.

Here is how gold and gold funds have done.

Returns chart 1-month return % 3-month return % 1-year return % 3-year return % 5-year return %
Gold funds 9.8 18.6 26.1 5.0 4.2
Domestic price of gold 10.8 20.8 29.8 6.2 5.7

Gold funds are mainly in two forms – gold exchange traded funds and gold savings funds. The three biggest gold funds are Reliance ETF Gold BeES, SBI Exchange Traded Fund and Reliance Gold Savings Fund.

Here is how gold funds have performed in the short term.

Gold fund name 3-month return % 1-year return % Net Assets (Cr)
Reliance ETF Gold BeES 20.36 28.47 2,513
SBI Exchange Traded Fund 20.57 28.52 686
Reliance Gold Savings Fund 16.3 23.62 680
HDFC Gold Exchange Traded Fund 20.45 28.37 509
UTI Gold Exchange Traded Fund 20.55 28.75 460
Kotak Gold ETF Fund 20.61 28.67 394
SBI Gold Fund 15.52 24.29 324
HDFC Gold Fund 15.62 23.48 233
Kotak Gold Fund 16.79 25.15 147
Axis Gold ETF Fund 20.34 28.19 119

Who really gained from gold rush

A good question to ask. How many investors have really gained from the price surge in the precious metal? Very few, actually. Gold funds managed less than Rs 7,000 crore investor wealth, which means gold funds account for just 0.25% of the Rs 25.81 lakh crore money in mutual funds. This theoretically means if the MF wealth is a Rs 10,000 kitty, barely Rs 25 is in gold funds, which have given fabulous returns in the last few months.

Investors pulled out money from gold funds for months at a stretch, as they got tired of waiting of ‘acche din in gold. So, when the gold rally actually happened, there are very few investors to take advantage of this phase. Do remember some years ago, gold funds used to hold investor wealth of Rs 12,000-13,000 crore. Today, the figure is half of it.

From the investor account (aka folio) perspective, it becomes clear that the rally in gold funds was missed by most investors. There are just 3.39 lakh investor accounts in the 12 gold ETFs. The entire MF industry has 8.48 crore investor accounts. This means gold ETF investor accounts are 0.40% of the industry total. It is not even 1%. So, for all practical purposes, it can be concluded that very few investors have enjoyed the latest superlative returns provided by gold ETFs and other gold funds.

How gold scored over equity

The double-digit % performance of gold funds has arrived at a time when returns from competing asset classes like equity have been poor. Most equity fund categories have posted losses in last three months, with small cap funds being hit the hardest at -6.5%. Equity international funds are the only bright spot with 2.4% average category return. Gold funds have done better when compared to debt funds as well. Debt fund categories have given average returns between 0.2% (corporate bond funds) to 4% (banking and PSU funds). Gilt and long duration debt funds have delivered 7-9% category average returns.

RupeeIQ take

As US-China trade tension slowly dissipate, Indian gold prices may come down from their highs. On August 12, gold prices touched an all-time high of Rs 38,470 (per 10 gms). If gold prices come down, should you avoid it? No. It all depends upon your approach. Gold is an asset class like equity, debt, etc. It has a permanent place in your investment portfolio. So, you should practice asset allocation and decide how much of each asset will have what % of your portfolio. If your practice asset allocation properly, you will never miss out any appreciation that could happen next.

Disclaimer: Views expressed here in this article are for general information and reading purpose only. They do not constitute any guidelines or recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide/investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument.

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at [email protected].

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