Total investment in gold deposit scheme cannot exceed 20% of total AUM of the Gold ETF scheme.
SEBI has allowed Gold ETFs to invest in gold deposit schemes (GDS) of banks. It said that the total investment in GDS cannot exceed 20% of total asset under management of any scheme.
“Before investing in GDS of banks, mutual funds shall put in place a written policy with regard to investment in GDS with due approval from the Board of the Asset Management Company and the Trustees. The policy should have provision to make it necessary for the mutual funds to obtain prior approval of their trustees for each investment proposal in GDS of any Bank. The policy shall be reviewed by mutual funds, at least once a year,” stated the SEBI circular issued on Friday.
SEBI has said that gold certificates issued by banks in respect of investments made by gold ETFs in GDS can be held only in dematerialized form.
Experts say that investing Gold ETFs investing in gold deposit of schemes could result in Gold ETFs outperforming their benchmarks. “The objective of Gold ETF is to track the returns of gold. By placing of gold available in the ETF as deposit with banks will result in additional returns. However, one needs to be cautious while getting back the gold when returning the deposit” said Jimmy Patel, CEO, Quantum Mutual Fund.
Investors have parked more than Rs 12000 crore in Gold ETFs as on January 2012. Inflows in gold ETFs halved to Rs 1509 crore (April to January 2012) compared to Rs 3330 crore net inflows in the corresponding period last year.
On January 21, the government hiked import duty on gold to 6% from 4% to curb gold demand and the decision to allow mutual funds to lend their gold to banks is intended to increase the supply of gold in the market.
