Sebi pens new gold ETF norms

As metal prices continue to skyrocket, the Securities and Exchange Board of India (Sebi) has issued further guidelines towards smoothening the launch of exchange-traded funds (ETFs) with gold as the underlying asset. According to the new guidelines, the funds are to be benchmarked against the price of the metal in London.

Since physical gold and other permitted instruments linked to gold are denominated in gold tonnage, it will be value based on the market price of gold in the domestic market and will be marked to market daily.

The market price of gold in the domestic market on any business day would be arrived at as under: Domestic price of gold = (London Bullion Market Association AM fixing in US$/ounce X conversion factor for converting ounce into kg for 0.995 fineness X rate for US$ into INR) plus custom duty for import of gold plus sales tax/octroi and other levies applicable," the circular pointed out.

The guidelines, which have been issued on the basis of clarifications sought by major fund houses on the earlier ones brought out on January 24, 2006, also give the trustees of the fund the right to change the source or centre for determining the exchange rate provided they give the reason for doing so in writing. Gold ETF typically is an exchange traded MF unit listed and traded on a exchange. Gold ETF schemes are permitted to invest primarily in gold and related instruments - Regulation 2 (mc) stipulates that gold-related instruments are those having gold as underlying security, and as specified by Sebi from time to time.

The first gold ETF was launched two years ago and was sponsored by the World Gold Council. In India, UTI Mutual Fund has a tie-up with State Street Global Markets as an investment advisor for investing in overseas market which launched the first such openly tradeable fund.