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Indian Gold ETFs nearing their launch

January 15th, 2007

As expected at the beginning of the year, the Gold Exchange Traded Funds are nearing their launch dates. Market sources say that AMFI is planning to give the green signal to these in the next month. With these schemes, as minimum as 1 gram gold can be bough through the scheme.

Indian Gold ETFs

Benchmark Mutual Fund, UTI Mutual Fund and Kotak Mutual Fund are already in queue and have filed offer documents before the market regulator for the nod. UTI Mutual Fund is in tie up with State Street Global Markets (SSgA) LLC as its investment advisor for overseas market. It may be recalled SSgA is one of the early people who are into Gold ETFs internationally.

Kotak Mutual Fund has recently filed its application before the SEBI for the Gold ETF and is awaiting the SEBI’s nod. The Draft Offer Document filed by Kotak Mutual Fund the fund will be an open-ended Gold ETF. The Units will be available at Rs. 10 each plus applicable load at the NFO time and at the applicable NAV during the continuous offer. (Entry load of 4% and exit load of 1%)

The fund objective is “The investment objective of the scheme is to generate returns that are in line with the performance of gold and gold related instruments, subject to tracking errors. However, investments in gold related instruments will be made if and when SEBI permits mutual funds to invest in gold related instruments.”

The fund will put in investors money into “gold, and endeavor to track the spot price of gold. The Fund may engage in gold lending, deposit gold with banks in return for fees to the extent permitted by Regulations The Fund may also invest in gold related instruments and bank deposits
to the extent regulations permit. The fund would invest all the residual funds after investing in gold in debt and money market instruments.”

The Global Experience

Global market experts however suggest investors to be a bit cautious about GETFs – particularly because even the finance market haven US does not have enough experience in this region.

Gold ETFs allow even normal people to buy gold units for as little as Rs. 100 and could trade them just like units of their mutual funds. However, it should be remembered that the gold in question here is 24 carat gold instead of the yellowish ornamental gold. Thus, GETFs should be used only when we wish to use it as an investment option rather than buying gold for making ornaments.

Entry Filed under: Mutual Funds, Gold ETF