Gold ETFs face supply issues

Reliance Gold Savings Fund reopens

The prospects may not be as bright this Diwali for mutual fund (MF) houses offering gold-based investment products. Procurement of physical gold continues to remain a challenge following restrictions by the Reserve Bank of India (RBI) and an import duty rise. The marketing of gold exchange-traded funds (ETFs), unlike the past few years, is likely to remain subdued.

Players said the situation was under control as redemptions had far outweighed subscriptions in recent months, that prevented those from running to bullion banks. Gold ETFs have seen outflows of Rs 1,000 crore in three months.

Reliance Mutual Fund decided to reopen its Reliance Gold Savings Fund. Gold ETFs are in demand on Dhanteras, considered auspicious for buying gold. Last year, gold ETFs had a trading turnover of Rs 2,000 crore on Dhanteras.

Reliance MF, which is the largest gold ETF operator, alone had witnessed a turnover of around Rs 1,400 crore.

In gold ETFs, investors do not have to take compulsory delivery of the metal when they buy and sell units of the scheme. However, an MF has to sell or buy physical gold and store it with a custodian bank on the basis of the units it issues.