SEBI has allowed fund houses to deploy up to 20% of the net assets of Gold ETFs in the government’s recently launched Gold Monetization Scheme (GMS).
In a circular, SEBI has said, “As per RBI notification, the Gold Monetization Scheme, 2015 (GMS) will replace the Gold Deposit Scheme, 1999 (GDS). However, the deposits outstanding under the GDS will be allowed to run till maturity unless these are withdrawn by the depositors prematurely. Considering the above, in partial modification, it has been decided that GMS will also be designated as a gold related instrument, in line with GDS of Banks. However, the cumulative investment by Gold ETF in GDS and GMS will not exceed 20% of total AUM of such schemes. All other conditions applicable to investments in GDS of banks will also be applicable to investments by Gold ETFs in GMS.”
A few months back, RBI had issued operational guidelines for GMS in which it had allowed mutual funds to invest in GMS offered by banks.
GMS enables households and jewelers to keep their gold with banks and earn interest on it. The deposits under the this scheme can be made for a short-term period of 1-3 years (with a roll out in multiples of one year); a medium-term period of 5-7 years and a long-term period of 12-15 years.
Some analysts suggest that GMS can fetch returns of 2.25%-2.5% annually.
Similar to a fixed deposit, breaking of lock-in period will be allowed in either of the options and there would be a penalty on premature redemption (including part withdrawal).
The minimum deposit should be equivalent to 30 grams of gold of 995 fineness. There is no maximum limit for deposit under this scheme. The gold will be accepted at the Collection and Purity Testing Centres (CPTC) certified by Bureau of Indian Standards (BIS) and notified by the Central Government. The deposit certificates will be issued by banks in equivalence of 995 fineness of gold.
Dinesh Khara, MD & CEO, SBI MF is of the view that GMS will help Gold ETFs reduce cost and enhance returns. “GMS will help fund houses cut down on custodian charges. On top of that, GMS offers returns which is over and above the value of gold bars. Gold ETFs can deliver attractive returns as compared to other gold related instruments if they invest in GMS”
In 2013, SEBI had allowed AMCs to invest in Gold Deposit Schemes (GDS) of banks. However, it has not taken off in a big way. A senior fund official told Cafemutual that only a few fund houses like Kotak and Goldman Sachs had deployed a small corpus in GDS. “This is a modification of 2013 circular in which SEBI had allowed us to invest in GDS. The scheme has not taken off in a big way due to operational hurdles and sub-optimal returns (1%). I don’t think GMS will add much value to Gold ETF portfolio,” said the sales head of a foreign fund house.
Jimmy Patel, CEO, Quantum MF said that his fund house is analyzing the pros and cons of GMS. “We are studying the circular and the scheme. We have to check whether it makes sense for us to deploy money in such schemes.”
