Bank of Nova Scotia identified as Indian gold ETF custodian


From Business Standard, New Delhi
Tuesday, February 20, 2007

UTI Mutual Fund today launched its gold exchange traded fund, becoming the second fund house in the country after Benchmark AMC to offer this asset class investment.

The new fund offer, with a minimum investment of 20,000 rupees, would be available between March 1 and 12 and would be listed on the National Stock Exchange on March 26.

"We are offering investors the convenient way to buy gold, whereby they don’t have to worry about its physical custody," UTI MF chairman and managing director U.K.Sinha said.

The gold ETF would be a "passively managed" open-ended fund through which investors can buy or sell gold units on the exchange. Each unit would be backed by physical gold held by the custodian.

India owns around 10 percent of the global gold stock and is biggest consumer of the bullion at around 722 tonnes.

The gold exchange-traded fund would deal in 99.5 percent pure gold, which is higher than the most commonly found quality (above 91.5 percent purity level) in the country. However, some banks offer higher quality gold of up to 99.9 purity.

"One unit would represent 1 gram of gold on allotment. Bank of Nova Scotia would be the custodian and the metal held by it would be fully insured," UTI MF chief investment officer A.K. Shridhar said.

The fund house would also be appointing around seven authorised participants, which would take benefit of the continuous arbitrage opportunities between spot prices and the ETF. The arbitrage would ensure that prices are in line with spot prices of gold and the net asset value of the ETF. Investors can buy any number of gold units as per the NAV.

Investors must have a demat account for investment. For those without demat accounts, the fund house has tied up with few depository participants (DPs) to help them open new accounts.

The fund will charge an entry load of up to 2.5 percent, while investors joining the scheme later would not have to pay the charge.

Investment in the scheme would attract long-term capital gain tax after a year and short-term capital gains, if redeemed, before that period.

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