AMCs want to ride the gold wave, line up gold funds

MUMBAI: Expectations of increased demand for gold, huge investor interest and an uncertain outlook for other asset classes are prompting asset management companies to launch gold funds. While analysts tracking the yellow metal are expecting prices to ease by mid-September due to an appreciating rupee, they are hopeful of gold prices picking up towards the end of the current fiscal on the back of rising inflation.

Sighting money-making prospects, several fund houses have approached capital market regulator Sebi for approvals to launch gold-based schemes. Sundaram BNP Paribas, UTI MF, Reliance MF, IDFC and Religare MF have sought approvals to start gold funds, many of which would also act (apart from investing in securities of mining and jewellery companies) as feeder funds to existing exchange-traded funds. The move is to enable more retail participation as investors are not allowed to invest in ETFs without a demat account.

���Gold as an asset class needs to be there in portfolios of investors. A mutual fund gold scheme will help retail investors participate without a demat account,��� said Reliance MF CEO Sundeep Sikka.

���We���re bullish on gold. Though we���re not expecting any major uptrends, gold as an asset class should have place in one���s portfolio not for any trading perspective, but for pure asset allocation needs,��� he added.



Gold demand rises in times of financial turbulence. The general presumption is that the US government will not have any choice but to print more dollars to arrest recessionary pressure and meet stimulus package requirements. This could greatly devalue or create a ���risk-fear��� against dollar. Since gold prices have a strong negative correlation to the dollar value, the yellow metal should do well in such a scenario, say experts.

���The outlook on gold has been largely positive. It has done well against other asset classes over the past 6-7 years,��� said T Gnanasekar, director of Commtrendz Risk Management Services. ���Gold appears a safe bet as downside is limited. Prices are likely to remain firm with the US printing more dollars; the stimulus packages given by it and other union governments, including India, will result in inflation picking up towards the next year. This will turn gold into a natural hedge against inflationary pressure,��� Mr Gnanasekar added.

Gold, trading around Rs 15,000 per 10 grams, may rise to Rs 17,500-18,000 levels. The upcoming wedding season and festivals will result in prices moving up. ���If the rupee is benign, gold will touch Rs 20,000, but that is highly unlikely as the rupee would gain significantly against the dollar,��� he said. While gold ETFs of major fund houses have logged one-year returns of 15-16%, existing gold MF schemes that primarily invest in mining companies, have fared poorly in terms of absolute returns, yielding -1-1.5%.