Mutual Fund Asset Management Companies may be permitted to keep up to 20 per cent of the underlying gold for their gold ETFs (Exchange Traded Funds) in banks’ gold deposit schemes.
“The market regulator SEBI is finalising new norms for the gold ETF following the Finance Ministry’s announcement on Monday. These are expected to be announced soon,” a highly placed source told Business Line .
The Finance Ministry on Monday proposed to permit a part of the gold physically held by mutual funds under gold ETFs to be deposited in banks’ gold deposit schemes. At present, theoretically the fund companies are supposed to buy gold equivalent to total investment under gold ETF and keep it in a vault.
However, as a practice, they are allowed to buy gold of the value of minimum 90 per cent of the investment, while the remaining 10 per cent can be invested in liquid funds to meet sudden redemption.
Now under the new norms, fund companies may be asked to keep gold as underlying worth 80 per cent of the total investment in a vault while remaining can be kept with bank gold deposit schemes. “In any situation, total value of gold held in vault and kept with bank gold deposit scheme should not go below 90 per cent of the total investment,” the source added.
Linkage of gold ETF with bank gold deposits aims to bring a part of the gold lying in stock into circulation and will partially meet the requirements of the gems and jewellery trade. Bachhraj Bamalwa, Chairman of the All India Gems and Jewellery Trade Federation said, “At present, gold ETFs have gold underlying worth approximately Rs 12,000 crore. If we talk about 20 per cent norms, this will release nearly 8 tonnes of gold, which is just sufficient to meet consumption of 7-10 days for the trade.” Certainly, this will not moderate the import demand much, he added.
Instead of such measures, Bamalwa advocated for an amnesty scheme to bring gold, lying idle in households, into circulation. “If even 10 per cent of 20,000-25,000 tonnes worth of idle gold is brought into the system, we will not require to import gold for at least next three years. In such a situation, international prices are likely to come down to $1200/ounce from current $1700/ounce,” he added.
shishir.sinha@thehindu.co.in