Govt may announce gold policy in Sept

The government is likely to come out with a new gold policy in September, official sources said last Friday.

The policy will address a variety of issues ranging from setting up of special zones for gold trade and also concerns relating to launching gold exchange traded funds (ETFs).

Earlier, the government was to come out with a new and comprehensive package for the bullion trade in April this year. The ministry of commerce had set-up a committee to formulate the gold policy.

The government is contemplating granting permission for banks to offer gold savings accounts, a committee member said. The government is also considering granting permission to non-bullion banks, those banks that are not designated to import gold, to trade in spot gold, the official said.

Currently around 15 banks are allowed to import bullion. Apart from this, the government has been also considering relaxation of norms for launching gold ETF by mutual funds.

In the Union Budget for 2005-06 (April-March), the government had given a green signal to mutual funds for setting-up gold ETFs.

Although many mutual funds have filed the draft schemes for such ETFs with the regulator, Securities and Exchange Board of India (Sebi), none of them have got a nod yet.

The official said that the main concern of Sebi is the cost structure of setting up such a fund, the returns of which, an asset management company (AMC) would generate and distribute among individual investors.

Under the existing norms, if an AMC sets up an ETF, then the funds collected from the investors would be given to a bank permitted to import gold. The said bank would then buy the required amount of gold and store it.

However, the problem about the cost structure arises because the AMC would have to pay the custody and insurance charges to the bank.

SEBI's concern is that if these costs are taken into account, then the AMC may not have enough returns to distribute among investors.

The committee has recommended that AMCs should be allowed to buy and store gold themselves and also be permitted to leverage upon the gold stock lying with them by lending it to traders and jewellers.

Another concern is that the cost of one unit of such an ETF, at around Rs 100 may be too low, adding significantly to the transaction cost of banks.

The committee member said that a recommendation has therefore been made that each individual unit may be priced higher, at something like Rs 20,000-25,000.