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Gold MFs by Reliance Mutual Fund, Kotak Mutual Fund and SBI Mutual Fund a big hit, outshine equity


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Record-level gold prices may have dampened the demand for jewellery, but it has hardly dented investors' appetite for products based on the yellow metal. Gold schemes with the facility to make periodic purchases, floated by Reliance Mutual Fund, Kotak Mutual Fund and SBI Mutual Fund, have seen sizeable inflows, prompting other asset management companies to plan similar product launches.

ICICI Prudential's opened its gold fund-of-fund NFO for subscription last week. Birla Mutual Fund and Baroda Pioneer Mutual Fund have filed drafts with market regulator Sebi to launch such schemes and many others are expected to follow suit. Fund houses are looking to cash in on the frenzy for gold products among investors, who are fleeing stocks because of the uncertainty over the debt crisis in Europe and worries about a recession in the US.

SBI Mutual Fund, which recently wound up its gold fund-of-fund NFO, raised almost 500 crore with 70,000 SIP folios from 1.3 lakh applications. Reliance MF, which was also raised about 500 crore in its NFO in February, is claiming to have received commitments worth 350 crore every year for the next ten years. Kotak Mutual Fund, which gathered a rather modest 80 crore in its NFO in August, has seen sizeable inflows since launch, a top official said.

The heightening rush for gold products is not without a reason: Gold mutual funds have returned almost 34% since January this year, while the value of equity diversified schemes have eroded 16% in the period. Most fixed income products return 10-12% annualised.

But, fewer investors could benefit from the gold rally till early this year, partly because they could only bet on gold through exchange traded funds (ETFs) or futures contracts. For that, they needed to open demat accounts with brokers, as ETFs are traded on stock exchanges like shares and most of them do not offer systematic investment plans (SIPs).

"ETFs were not fully exploiting the possible investor demand for gold because of the lack of awareness, but with the fund-of-fund structure, there is scope for wider investor participation," said Lakhshmi Iyer, head-fixed income and products, Kotak Mahindra Asset Management.

SIP GOLD, DON'T GULP

The consensus among investors and analysts is that gold is 'overbought' at these levels and could correct significantly from these levels. "The recent rally in gold is certainly overdone and certainly not conducive for lump sum investments," said Harish Galipalli, research head of JRG Wealth Management. "We expect a correction and consolidation over the next four to five quarters," he said. He does not rule out a jump in gold to 36,000 next year.

Indian gold prices, currently at about 26,300, could correct as much as 25% this year, analysts said. But, the market is divided on the probability of a sharp rebound after the expected decline. "Rupee cost averaging (SIPs) is a good strategy to bet on gold because there could be a bounceback after the correction if concerns in developed markets persist," said Alex Mathews, head-technical research, Geojit BNP Paribas.

A section of the market feels there is very little steam left for gold to run up as central banks in developed economies are refraining from printing money. Gold and other commodities gained from the billions of dollars that the US Fed pumped into the market by way of quantitative easing programmes.

"There is no real money to push up gold prices further. It will remain in a range, at the most," said a fund manager, who manages a mutual fund scheme, which invests in equities, bonds and gold.
Source: Economic Times

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