India may be indifferent to gold ETFs without delivery of metal


Gold ETFs May Not Be A Big Hit

By Ashutosh Joshi
Business Standard, Mumbai
Thursday, March 22, 2007

MUMBAI -- The launch of the country's first exchange-traded gold fund by Benchmark Mutual Fund has paved the way for investors to invest and trade in the yellow metal just like in any other equity investment.

But the scheme, called Gold BeES, may not attract investors in large numbers as having a demat account is mandatory for investing in the ETF. Besides, investors may not be keen to invest in this product since on redemption the repayment is done in cash and there is no physical delivery of gold.

These requirements hit fund houses' plans to garner big investments for such schemes as number of demat account holders in the country is small compared with the that of bullion investors. Traditionally gold has been a safe investment for future.

In a bid to overcome this issue, the fund houses are tying up with depository participants (DPs) and offering demat account services to investors, said officials.

"We have tied up with a few top DPs who on request by the investor would open a demat account within 24 hours," Rajesh Bhojani, president for sales, UTI Mutual Fund, said. The MF is expected to list its gold ETF scheme by the end of the month.

At present India accounts for 23 percent of the world's jewellry demand and around 35 percent of global investment in gold comes from the country.

However, a large number of investors put their money in gold not only to see value of their investment grow but also to use the metal for making jewelry later.

The MFs are also working out a strategy to pay back investors in the form of bullion.

"The physical delivery of gold on redemption is possible. New regulations are to be put in place," Sanjiv Shah, executive director of Benchmark Mutual Fund, said.

Benchmark BeES has collected around Rs 100 crore during its new fund offer period and received applications from 22 states in the country.

The minimum subscription for the scheme was Rs 10,000, while it is Rs 20,000 for the UTI's GETF scheme.

Besides Benchmark and UTI, five other MFs have also lined up to launch their gold ETF schemes.

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