India’s market regulator has directed mutual funds to bar fresh investments in gold mutual fund schemes, a move likely aimed at curbing demand for the precious metal, but it has left gold exchange-traded funds (ETFs) untouched, a gap that experts say could blunt the curbs because investors can still buy gold through the stock market.
The Securities and Exchange Board of India (Sebi) has asked mutual funds to stop accepting fresh lump-sum investments, systematic investment plans (SIPs) and systematic transfer plans (STPs) into gold ETF fund-of-funds (FoFs) from 16 October, two industry officials told Mint. The curbs currently do not apply to gold ETFs.
The move may be aimed at curbing gold imports and easing pressure on the rupee, which has hit a string of record lows this year. But the gold fund restrictions may achieve little if investors simply switch to buying gold ETFs directly.
“The intention is to curb fresh investments in gold,” said Kartik Sankaran, founder of Fiscal Fitness, a mutual fund distributor. “However, halting inflows into gold FoFs while allowing the creation of new ETF units could defeat the entire purpose.”
The distinction matters because investors can buy gold ETFs directly on stock exchanges, although they need a demat account to do so. Gold ETF FoFs, by contrast, invest in gold ETFs and allow investors to gain exposure to the precious metal without opening a demat account.