The Hindu Business Line : Benchmark Gold ETF launch on NSE in a few weeks

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Mumbai March 1 The country's first Gold Exchange Traded Fund (Gold ETF), promoted by Benchmark Asset Management Company, has managed to collect a corpus of Rs 100 crore. The ETF is expected to be launched on the National Stock Exchange in a couple of weeks' time, Mr Rajan Mehta, the company's Executive Director said.

The Rs 100-crore corpus on its New Fund Offer has been generated at a time when gold prices are on an upward curve and ruling firm above $670 an ounce or Rs 9,800 per 10 grams.

The idea of Gold ETF was mooted in the first Union Budget of the present Government in July 2004; but the idea ran into technical troubles including custodial issues, all of which were resolved a few months ago. Benchmark had filed its first application to SEBI in early 2002.

"It is a good start, much higher than other ETF's launched by us in the past like Nifty, Nifty Junior and others," said Mr Mehta. He expressed optimism that the corpus of the open-ended scheme would grow over a period of time.

`Soft launch'

The company is in the process of allotting the units to investors before the units are launched on the Exchange. While calling it a soft launch to build up through the exchange mechanism, Mr Bhargav Vidya of B.N. Vidya and Associates said that the size of corpus was expected, given the high entry rate (Rs 10,000).

There is an entry load of 1.5 per cent in the NFO route. Investors will be spared this if they bought units through the NSE mechanism from the Authorized Participants.

Currently the price band of gold's daily movement is around $15/oz, which is very volatile, Mr Vaidya pointed out, adding that Indian consumers like price stability in the yellow metal from where they can decide a comfortable buying level.

The product is such that investment will grow post the NFO, said Mr R. Raja, Senior Vice-President of Products, UTI, adding that according to UTI homework there was huge interest in the product.

UTI's Gold ETF opened on Thursday. In two years' time, the ETF industry would be a sizeable one of around Rs 5,000 crore, he said.

The corpus would have been larger at Rs 400-500 crore had gold prices been lower at around Rs 9,000-9,100, said Mr Prithviraj Kothari, Director, Riddhi Siddhi Bullion. When the Benchmark NFO opened, gold was ruling at $640/oz or Rs 9,400/10 grams.

Product uses

The unit could be used as a collateral security, and used by anyone including Government to hedge against inflation. Banks, mutual funds and institutional investors that are not allowed to participate on the commodity exchanges can also use this product, which will make it more liquid, he explained. The units can also be purchased and gifted.

Mr Suresh Hundia, President of Bombay Bullion Association, wondered about the working of Gold ETF in India where traditionally gold is associated with physical holding than as a paper document.

Cost of holding the units will have to be incurred, while conversion of units to gold will be dictated by market makers, he apprehended. The corpus of the fund is not big compared to the market volume, according to Mr Mukul Sonawalla, former President of the BBA.

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