It is the most hassle-free route for retail investors to take an exposure to the yellow metal. But just as the gold exchange-traded funds (ETFs) were gaining in popularity, a tricky question has risen as to who should be regulating them, and whether gold ETFs should be allowed to be traded on the stock exchanges, as they are being now.
According to people familiar with the development, the consumer affairs ministry has posed this question to the law ministry, since the underlying for gold ETFs is a commodity, and should logically fall under the purview of the forward markets commission (FMC).
The law ministry had asked for FMC's inputs on the matter and the commission submitted its views past month. An official at FMC told ET that once the Forward Contract Regulation Act amendment bill is passed in Parliament, products like gold ETFs will become a part of the commodity markets, and will be regulated by FMC. But even before that, opinion within FMC is divided on whether gold ETFs should be allowed to be traded on stock exchanges. Some officials see this as an encroachment on the commodity market, while others argue that since gold ETFs are a spot instrument launched by mutual funds, there is nothing wrong in them being traded on the stock exchanges and being regulated by SEBI.
NCDEX chief economist Madan Sabnavis feels that logically since the underlying is a commodity, gold ETFs should fall under the purview of FMC. He added if such funds are launched in other commodities like soy oil there could be issues pertaining to prices, which FMC would be best placed to address.
Gold ETFs are gaining acceptance, but the products is yet to reach the popularity of mutual fund products. A total of six fund houses - Benchmark Asset Management Co, Kotak Mahindra Mutual Fund, UTI Asset Management Co, Reliance Capital Asset Management, Quantum MF and SBI Mutual Fund - at present offer gold ETFs in India.
According to data by the Association of Mutual Funds of India, assets under management (AUM) by gold ETF have risen 30% over the past one year to Rs 904 crore as on August 31, 2009.
Though gold collections under ETFs are growing, they remain minuscule when compared with India's gold imports of about 700 tonne annually.
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