Will Gold ETFs be affected?Gold prices have fallen while the import duty on the yellow metal has risen in India. Will AMCs stopselling fresh units to help curb the current account deficit?Author : iFast Content TeamThe large current account deficit (CAD) is making a lot of entities jittery. The wariness ofForeign Institutional Investors (FIIs) is evident in them pulling out their money. Thegovernment is naturally concerned too. And since gold is the highest contributor to India’simport bill after petroleum, the government has waged war against gold.As gold prices tumbled across the globe, Indians were only more than happy to increase theirpurchases. To counter this development, the government kept hiking the import duty on gold.This seems to have had the desired effect on demand. It has been reported that gold imports areexpected to more than halve to about 150 tonnes in the coming quarter (July-September 2013)against the projected 350 tonnes in the current quarter.The Reserve Bank of India (RBI), on its part, has directed banks not to provide loans againstgold jewellery and coins. The central bank has also requested banks to restrict lending againstunits of gold exchange-traded funds (ETFs).Jewellers are giving the impression of being supportive. The Gitanjali Group feels that measuresfor reducing gold imports need to be supported but is also of the stance that the governmentneeds to address the issue of how the CAD can be reined in without impacting the jewelleryindustry. Zaveri and Co, which apparently imported about 2 tonnes in May 2013, stated thatthey are helping the government by telling everyone not to buy gold.Reliance Capital became the first company to suspend gold sales. Sam Ghosh, CEO, was quotedin Reuters as saying that imports have “placed an unbearable burden on the current accountdeficit and are severely hurting the countrys growth prospects." Reliance Capital will stopselling gold in a physical form, including the sale of coins through India Post. The company’scommercial finance division will also stop lending against gold as security.It has also been reported that Reliance Capital Asset Management is planning to suspend newsubscriptions in Reliance Gold Savings Fund — a gold-backed ETF. Do note, this is NOT in effectyet and will take place only once regulatory approval is obtained by the Securities and ExchangeBoard of India (SEBI). But investors need not worry. It will not impact the gold currently held bythe ETF. And should there be any restriction in the future with regards to fresh lumpsuminvestments and new systematic investment plans (SIPs), existing SIP investors will NOT beaffected by this decision.Keep an eye out for SEBIs verdict and what Reliance AMC decides to do. It will be indicative ofthe actions that will be taken by other fund houses as well.Heres why you should consider investing in mutual funds.To buy and sell mutual funds online, click here.Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual fundsof any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or bematerially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or saleof any mutual fund. No investment decision should be taken without first viewing a mutual funds scheme information documentincluding statement of additional information. Any advice herein is made on a general basis and does not take into account the
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