GETFs: Golden chance for custodians

The launch of gold exchange traded funds (GETFs) in the country will bring opportunity to global custodian service providers and safekeeping agencies such as Bank of Nova Scotia, Brinks Arya and Group 4 Securitas to expand their services in India.

This is following the recent amendment of the Custodian of Securities Act enabling outsourcing of bullion's safekeeping services.

The Securities and Exchange Board of India (Sebi), currently working on final guidelines for the gold ETFs, amended the Act last month, allowing the custodians to provide safekeeping services to outside agencies. At present, Brinks Arya and Group 4 Securitas are the private agencies engaged in these services.

Globally, there are large players such as HSBC that have a strong presence in these areas. Bank of Nova Scotia has also applied to the Sebi for the custodian licence.

Industry expects more global agencies to evince interest in these services once the market regulator gives the final nod for gold ETFs.

"We are awaiting the Sebi clearance for the first GETF, for which Benchmark and UTI have already filed their documents. The banks will act as custodians, and safekeeping of the bullion will be their responsibility, though they will be taking services of outside safekeeping agencies," A P Kurian, chairman, Association of Mutual Funds in India, said.

"We expect that these issues will be clear with the launch of the first GETF," he added.

GETFs, which allow investors to trade directly in gold just like equity instruments, have already been in existence in the advanced markets like the US and the UK, and are listed on Australian and Singapore stock exchanges. India, with gold stocks worth more than Rs 24 lakh crore, is seen as a prospective market for GETFs by global players.

"The launch of GETF will definitely give the investor an edge for investing in gold. Indian buyers convert their money into gold jewellery, which calls for almost 10-15 per cent premium charges for manufacturing. But charges in GETFs will be minimal," Dharmesh Sodah, joint director, World Gold Council, said.

"The funds will also offer liquidity. We hope investors will be attracted to them," he added.

GETFs have received a warm response from investors in the US, which has over 300 such funds. In India, besides Benchmark and UTI, DSP Merrill Lynch is also believed to be considering introducing such funds to its portfolio.