Gold ETFs to stay off comexes ambit

Commodity exchanges will not get to trade in gold exchange traded funds (GETFs) as mutual funds are currently barred from trading in commodities.

ETFs are instruments that allow small investors to trade in the yellow metal through mutual funds. A P Kurian, chairman, Association of Mutual Funds in India (AMFI), today said mutual funds would soon launch GETFs.

But since regulations did not permit them to trade on comexes, these would be traded in the equity markets, he added.

Only when the Forward Contract Regulations Act (FCRA) gets amended, mutual funds can trade in commodities.

Kurian, speaking at a seminar titled 'Is India ready for global bullion products?', suggested that small investors should enter gold trade through the route of mutual funds, which are not currently permitted to trade on commodity exchanges.

Hence, if at all GETF is opened for trade on commodity exchanges, FCRA "� awaiting clearance possibly by December this year "� needs to be amended.

At present, gold trades are confined to the trader and jeweller level only, "we want to go to the consumer level to see the real volume of gold trade in India, as has been practised in Australia, South Africa and the US", Kurian said.

S Sundareshan, chairman, Forward Markets Commission, said, "We are working under certain framework chalked out by the government and, hence, we have no comment to offer publicly at all on where ETFs to be traded and when."

"We are ready with all infrastructure in place. Only the final leg of several hurdles needs to be cleared which, I am sure, will be done very soon," Kurian said.

UTI and several other funds are ready with the instrument to launch GETF, he added. The Indian government has been working to sort out problems such as custodian of gold in case of delivery and the costs involved in handling, storing and carrying.

The major problem that the industry faces in launching GETF is: Who will bear the cost of carry? The final solution must be that "the customer has to bear it", the chairman said.

Jignesh Shah, MD and CEO, MCX, however, expressed unhappiness over the potential of GETF being launched only in the equity markets.

"If GETF is launched only in equity markets, it's only half the job done and, hence, it should be open for trade in both equity markets and commodity exchanges," Shah said.