Mutual funds suspend bulk subscriptions to gold ETFs ahead of festival season
The suspension comes ahead of Dussehra and Diwali, when gold purchases are considered auspicious and investments in precious metals typically rise.
Several major Indian mutual funds have suspended the bulk subscriptions to gold exchange-traded funds (ETFs) just before the festive season, according to public notices issued on Thursday. These notices were sent by prominent fund houses such as Kotak Mahindra Mutual Fund, UTI Mutual Fund, and HDFC Mutual Fund. However, the reasons for this decision were not disclosed.
Despite the lack of an official explanation, the action appears to have been prompted by the Securities and Exchange Board of India (SEBI), according to sources familiar with the matter. SEBI declined to comment on the matter as it is not permitted to speak about internal discussions.
The halting of bulk subscriptions is not a restriction on redemptions, meaning investors can still sell their existing holdings in these funds. The decision aligns with the pre-festival demand surge typically witnessed among investors. Two officials from the bullion industry confirmed that these actions were a response to the regulator's request. SEBI's spokesperson did not provide further information when reached out by Reuters.
The Indian rupee has been struggling in recent times due to a spike in global oil prices, leading to a higher import bill for the country. Additionally, heavy selling by foreign investors in Indian equities has added to the rupee's pressure. Gold's strong demand further exacerbated this situation, prompting the government to raise import duties on gold and silver earlier this year.
India, being the world's largest consumer of silver and the second-largest consumer of gold, relies heavily on imports to meet most of its demand, which could widen the trade deficit.
Gold imports declined to $1.8 billion in September, down from $2.3 billion in August. However, Indians celebrate significant festivals like Dussehra in October and Diwali in early November, during which buying gold is considered auspicious. Inflows into gold and silver ETFs saw a surge during last year's festival season as investors turned to precious metals due to lackluster stock market returns.
The surprise suspension of bulk subscriptions could be a precautionary measure to avoid a potential surge in gold imports during the upcoming festival season.
Written by urgent.news from Hindu BusinessLine's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
