The country wide investors of Gold Exchange Traded Funds can now get hassle free loans against their ETF units, Muthoot Finance Ltd has said. Muthoot Finance, the largest gold financing NBFC in India will begin the offer from August 2011.

Addressing a press conference in Kochi, Mr George Alexander Muthoot, Managing Director of Muthoot Finance, said: “Loan against gold is a scheme through which Muthoot Finance plans to venture into the totally new segment of gold financing which would not only add value but also enable the company to service the financial requirements of newer customer segments.”

Gold ETFs, commonly referred to as “paper gold” are mutual fund units issued by Asset Management companies against 995 purity physical gold deposited with a SEBI registered custodian. ETFs are listed and traded in stock exchanges and can be bought and sold on a real time basis, giving the instrument immense liquidity. Customers of Muthoot Finance would be able to withdraw as much as 85 per cent of the net asset value of the ETF of that day.

Now a customer holding Gold ETF can get greater benefit by obtaining a loan against the instrument to meet his short term cash requirements, without having to sell his paper gold. Since these funds are passively managed and mirror the domestic gold prices, they have been showing consistent growth in the value. Hence, most people were seen as being averse to parting with the Gold ETF for their short-term cash requirements. The investments would continue to grow even as the short term money requirements of the customers are met.

“Gold ETF has seen a progressive rise in popularity throughout the country over the past two to three years with a whopping size of over Rs 5,000 crore as on June 2011, resulting out of the active investments from over 3,20,000 investors,” Ms Sunitha Anand, Assistant Vice-President and Head of the Southern Region for NSE, said.

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