Investors globally have found solace in gold in the last one year when major world economies slipped into recession.  Sample this: According to World Gold Council data, investment by exchange traded funds in gold was 150 tonnes in the third quarter (July to September-end).

In fact, after the collapse of Lehman Brothers, net inflows increased by $ 7 billion (111 tonnes) in just five trading sessions.

Back home, the situation is different. In the last one year, investment in gold ETFs in India has risen by a mere Rs 303 crore (Rs 3.03 billion). In January, gold ETFs collected only Rs 30 crore (Rs 300 million). At present, the total assets under management of gold ETFs stand at Rs 721.65 crore (Rs 7.22 billion).

Investors have shown much more interest in other categories. In the past four months, when interest rates started softening, investors rushed to gilt funds and put in Rs 11,898 crore (Rs 118.98 billion) since October. Gold ETFs attracted only 39 crore in the same period.

This is despite the fact that gold ETFs, which mirror the price of gold, have given a decent return of 18.97 per cent (week ending February, 10) in the last one year.

In the same time period, the returns given by equity diversified funds have fallen 47.11 per cent. Even the Bombay Stock Exchange Sensitive Index, or Sensex, has dropped 44.76 per cent.

The industry is, however, optimistic. "The investor response is in tandem with our expectations," said Lakshmi Iyer, head (products & income), Kotak Asset Management Company. Kotak's AUM has risen from Rs 38.49 crore (Rs 384 million) to 50.15 crore in the last 13 months (January 2008 to January-end). But the number of investors has gone up from 1,000 to 7,000.

One of the main reasons for this slow off-take is the requirement of a demat account for investors. This is not required in other kind of funds. Gold ETF units are bought and sold on stock exchanges like shares. But brokers are not interested in chasing small clients, who buy small quantities every month. "And many are not well-versed with this process," Iyer said.

Another major reason is lack of distributor enthusiasm. "The mutual fund industry is driven by distributors. And they get commissions for selling every product, except gold schemes. That's why no one recommends them," said Arvind Chari, fund manager, Quantum Mutual Fund.

Investment advisors and distributors, on their part, blame it on lack of investor awareness.

Most financial planners recommend gold ETFs to physical gold. The savings start right from the purchase stage. All sellers, including banks, charge a commission on the actual gold price. This can be 1-5 per cent.

In case of an emergency, the real value of gold cannot be realised. Banks don't buy back, they only lend against it. Jewellers buy it at a discount. Gold ETFs have none of these problems.