Gold holdings of Indian ETFs soar

Tags: Mutual Funds

14 funds garner 40,000 kg gold on rising prices and continuing investor demand

The country’s 14 gold-exchange traded funds (ETFs), which allow investors to trade in the metal in non-physical form electronically on stock exchanges, have together garnered a staggering amount of 40,000 kg of this precious bullion.

Gold ETFs, which debuted in India about six years ago, aim to provide investors returns linked with domestic price of physical gold, but holdings are maintained in demat form.

The first gold ETF was launched by Benchmark Mutual Fund (now Goldman Sachs) in early 2007 and now there are 14 mutual fund houses present in this segment managing gold assets worth nearly Rs 12,000 crore, as per the data available with industry body Association of Mutual Funds in India (Amfi).

In terms of gold weight, Goldman Sachs Gold ETF manages 11,218 kg, followed by RShares Gold ETF with nearly 9,800 kg, and Kotak Gold ETF and SBI Gold ETS hold about 4,500 kg each.

Comparatively, smaller gold ETFs from UTI and HDFC fund houses manage gold weighing less than three tonnes each, individual portfolio for December 2012 shows. One tonne is equal to 1,000 kg.

At about 40,000 kg or 40 tonnes, India’s total gold ETF dump is, however, only about 10 per cent of the 398 tonnes of gold imported in the April-October 2012 period.

Rising prices and continuing investor demand for gold has seen ETF assets as well as reserves double from May 2011.

A recent RBI working group had recommended that to gainfully use the gold reserves with Indian ETFs and reduce the demand for gold, a certain part of the total corpus of the fund could be loaned to the permitted categories of bulk gold importers.

To check imports, the government has also hiked duty on gold to 6 per cent from 4 per cent. It also linked gold ETF schemes offered by mutual funds to gold deposit schemes of banks with a view to increase availability of physical gold in the market.

Gold import, which was only second to oil, contributed to the current account deficit, which widened to a record high of 5.4 per cent of GDP in the July-September 2012 quarter. Even the Reserve Bank of India (RBI) in its policy review has raised concerns over the high gold import and CAD.

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