 "Supply issues remain for Gold ETFs even as festive season nears")
The prospects may not be as bright this Diwali for mutual fund (MF) houses offering gold-based investment products.
Procurement of physical gold continues to remain a challenge following restrictions imposed by the Reserve Bank of India (RBI) coupled with import duty hike imposed by the government. The marketing of gold ETFs, unlike past few years, too is likely to remain subdued.
Industry players said that situation, so far, was under control as redemptions had far outweighed subscriptions in recent months, which prevented them from running to bullion banks begging for gold. They added that if the demand out paces supply they could face a crunch.
Bullion banks, who have been asked to give prioritise supply of gold, are rationing to ensure the demand from exporters and jewellers is met first, potentially leaving ETFs in the lurch.
“Gold supply to mutual funds is not assured. So far there have been redemptions but if subscriptions out pace during the festive season obtaining gold could be a problem,” said a senior official at a fund house adding that the industry has sought clarification from the regulators on whether MFs eligibility to source gold.
Fund houses may not aggressively push gold ETF schemes this Diwali but they are nevertheless gearing up for the Dhanteras day action.
Reliance Mutual Fund, which had suspended fresh subscriptions to its gold saving scheme, has decided to reopen the scheme. The fund house, which had taken the step to support the government in rein in current account deficit (CAD), has said improvement in the macro situation is the reason for restarting the gold scheme.
“In last few months government has initiated measures to curb imports of gold, including that of increasing the import duty. The measures are expected to result in reduced gold imports, leading to significant reduction in CAD. With macro economic conditions improving incrementally and rupee stabilizing quite a bit, the fund has been restarted on a popular investor demand,” said the fund house.
Gold ETFs are in great demand during on Dhanteras, which is considered to be an auspicious occasion for buying gold. Last year, gold ETFs had clocked a trading turnover of more than Rs 2,000 crore on Dhanteras. Reliance MF, which is the largest gold ETF operator, alone had witnessed a turnover of around Rs 1,400 crore.
In gold ETFs, investors do not have to take compulsory delivery of the metal when they buy and sell units of the scheme. However, an MF has to sell or buy physical gold and store it with a custodian bank on the basis of the units it issues.
Procurement of physical gold continues to remain a challenge following restrictions imposed by the Reserve Bank of India (RBI) coupled with import duty hike imposed by the government. The marketing of gold ETFs, unlike past few years, too is likely to remain subdued.
Industry players said that situation, so far, was under control as redemptions had far outweighed subscriptions in recent months, which prevented them from running to bullion banks begging for gold. They added that if the demand out paces supply they could face a crunch.
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Gold ETFs have seen outflows of nearly Rs 1,000 crore in the past three months.
Bullion banks, who have been asked to give prioritise supply of gold, are rationing to ensure the demand from exporters and jewellers is met first, potentially leaving ETFs in the lurch.
“Gold supply to mutual funds is not assured. So far there have been redemptions but if subscriptions out pace during the festive season obtaining gold could be a problem,” said a senior official at a fund house adding that the industry has sought clarification from the regulators on whether MFs eligibility to source gold.
Fund houses may not aggressively push gold ETF schemes this Diwali but they are nevertheless gearing up for the Dhanteras day action.
Reliance Mutual Fund, which had suspended fresh subscriptions to its gold saving scheme, has decided to reopen the scheme. The fund house, which had taken the step to support the government in rein in current account deficit (CAD), has said improvement in the macro situation is the reason for restarting the gold scheme.
“In last few months government has initiated measures to curb imports of gold, including that of increasing the import duty. The measures are expected to result in reduced gold imports, leading to significant reduction in CAD. With macro economic conditions improving incrementally and rupee stabilizing quite a bit, the fund has been restarted on a popular investor demand,” said the fund house.
Gold ETFs are in great demand during on Dhanteras, which is considered to be an auspicious occasion for buying gold. Last year, gold ETFs had clocked a trading turnover of more than Rs 2,000 crore on Dhanteras. Reliance MF, which is the largest gold ETF operator, alone had witnessed a turnover of around Rs 1,400 crore.
In gold ETFs, investors do not have to take compulsory delivery of the metal when they buy and sell units of the scheme. However, an MF has to sell or buy physical gold and store it with a custodian bank on the basis of the units it issues.