Market regulator Securities and Exchange Board of India (Sebi) today allowed gold Exchange Traded Funds (ETFs) to invest in the gold deposit schemes of banks, as part of overall efforts to utilise idle assets of the precious metal for more productive purposes.
Sebi has allowed gold ETFs of mutual funds to invest in the Gold Deposit Scheme (GDS) of banks, subject to certain conditions including that the "total investment in GDS will not exceed 20 per cent of the total asset under management of such schemes".
A Reserve Bank of India (RBI) panel has estimated that about 20,000 tonnes of idle gold is lying with the people. The central bank wants to channelise the idle gold for productive purposes and also check the demand for imports.
As per Sebi guidelines, before investing in the GDS, mutual funds would have to put in place a written policy related to the investment with due approval from the Board of the Asset Management Company and the Trustees.
"The policy should have provision to make it necessary for the mutual funds to obtain prior approval of their trustees for each investment proposal in GDS of any Bank," Sebi said in a circular. Further, the policy has to be reviewed by mutual funds, at least once a year.
"Gold certificates issued by Banks in respect of investments made by Gold ETFs in GDS shall be held by the mutual funds only in dematerialised form," the circular said.
Last month, the Finance Ministry had announced plans to link gold ETFs of mutual funds with gold deposit schemes of banks with a view to increase domestic availability of physical gold.
Rising gold imports have been a major concern for the government as it contributes substantially to the widening of Current Account Deficit (CAD) -- the difference between the inflow and outflow of foreign currency. Gold imports till December stood at $38 billion. In 2011-12 fiscal year, its import stood at $56.5 billion.