A number of large mutual fund houses late on Thursday (15 October) issued notices halting bulk subscriptions to gold exchange-traded funds () ahead of the festive season in India, according to a Reuters report.
The report noted that public notices were issued by MFs including , Kotak Mahindra MF and UTI MF among others, who did not explicitly cite a reason for the suspension.
Here’s what changes and happens to your existing SIPs
- What’s changed is that fresh subscriptions have been temporarily halted by large fund houses in India.
- Thus, those looking to avail gold ETF subscriptions during the festive period may find themselves unable to invest fresh.
- According to the notices posted by the fund houses, will be able to continue redemption on their existing gold ETFs.
- Further, those with existing systematic investment plans (SIPs) will also be able to continue to be processed at prevailing net asset value (NAV).
Why mutual funds halted gold ETFs subscriptions?
As per the Reuters report. citing an MF executive in the know, while did not official give a reason for the move, the decision comes after discussions with the Securities and Exchange Board of India (SEBI). It added that two bullion industry officials confirmed a nudge from the capital markets regulator.
It added that queries sent to SEBI did not immediately receive responses.
Further, it added that the Indian has been under pressure this year due to a surge in global oil prices, which have inflated the country’s import bill, and heavy selling by foreign investors in Indian equities. Strong demand for gold has further weighed on the currency, prompting the government to raise import duties on gold and silver earlier this year.
Anticipating festive season demand?
India is the world’s largest consumer of silver and second-largest consumer of . However, the country relies on imports to meet most of its demand — something that can pressure trade deficit, it added.
Gold imports fell to $1.8 billion in September, from $2.3 billion in August. However, Indians will celebrate Dussehra in October and Diwali in early November, when buying gold is considered auspicious. The report noted that demand is thus likely to rise. It pointed that subscriptions for gold and silver ETFs surged during last year’s festive season amid lower returns.
This move may thus be preemptive. “The move is surprising, as imports have fallen sharply over the past two months from a year earlier and have not contributed to the trade deficit. It looks more like a precautionary measure to avoid a surge in imports in October,” a dealer at a private bank that supplies bullion to ETFs told the news agency.
(With inputs from Reuters)