Saturday, February 16, 2013

SEBI Allows Mutual Funds To Lend Gold

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Close to the heels of RBI allowing banks to offer gold schemes with lower maturity, SEBI has allowed mutual funds to invest in such bank gold schemes by lending their idle physical gold.

At present, mutual funds hold physical gold. But now mutual funds will be allowed to invest 20% of their total asset base with banks. With this move, the government hopes that the gold which was held by mutual funds in physical custody till now, will come back into circulation through banks. Only 20% of the gold is being allowed to be deposited with banks to make sure that funds are in a position to meet investor demand if there is a sudden redemption.

This will enable the funds to earn a return on the gold they deposit and enable investors to get better return on their investment. This will allow banks to lend this gold to jeweler which should lower demand and therefore reduce gold import.

This is a good move by the government and is a win-win situation for everyone, except the speculators who believe the gold prices will move up forever. This move should definitely stabilize gold prices in India and reduce current account deficit.
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