The Hindu Business Line : SEBI puts gold funds plan on hold for now

ALTHOUGH the Finance Minister proposed the introduction of Gold Exchange Traded Funds in February, investors would have to wait a while before they are allowed to invest in these, as the Securities and Exchange Board of India appears to be in no mood to introduce the product in a hurry.

SEBI is understood to have kept the introduction of gold units in abeyance for now. This is despite the fact that asset management companies have filed their offer document for launching this product. In fact, in the case of Benchmark Mutual Fund's Gold Exchange Traded Funds (ETFs), the mandatory 21 working days by which SEBI has to respond to offer documents, falls due by the end of this week.

Though the fund house is awaiting news about its offer document, SEBI sources say that the regulator is yet to decide on an implementation strategy for the product.

The issue that is holding up the regulator is the fact that gold is not a "security" that comes under the mandate of SEBI. In fact, the Forward Markets Commission is in charge of regulating this commodity. SEBI, however, is said to be not interested in handing over the regulation to the Commission.

The capital market regulator has also not undertaken any exercise so far to figure out how best to allow AMCs to launch products in this category. "There have been no formal consultations that SEBI has had either with the Reserve Bank of India or the Forward Markets Commission so far," said a SEBI insider.

It may be recalled that in his presentation of the Union Budget 2004, Mr Chidambaram had announced that he would "initiate steps to integrate the commodities markets and the securities markets". However, so far no steps have been taken about the integration and people in the know predict that the two regulators cannot be integrated.

The imbroglio of the regulatory responsibility of Gold ETFs further adds fuel to this argument.

"Beyond what was announced in the Budget about the introduction of gold ETFs, we have no further information," said Mr S. Sundaresan, Chairman, Forward Markets Commission.

Several other fund houses, which are also keen on launching this product, are actively following the fate of the Benchmark AMC's offer document. Fund houses are seeking to diversify into mutual fund products whose underlying assets are not just debt and equity as it would help them provide returns through cycles in both the commodities and securities markets.

If current indications are to go by, these fund houses have a long wait ahead.

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SEBI puts gold funds plan on hold for now