The new fund will track the price of gold. Its appointed custodians will buy and sell gold bullion as investors look at positions in the ETF. The GETF idea was proposed by Finance Minister P. Chidambaram, who proposed in the Union Budget 2005 that Sebi should permit, in consultation with the RBI , mutual funds (MFs) to introduce Gold Exchange Traded Funds (GETFs) with gold as the underlying asset. Such a move would enable any household “to buy and sell gold in units for as little as Rs 100,” and these units could be traded in the same manner as MF units, he said.

As the first step, Sebi had recently allowed domestic mutual funds to invest in ETFs abroad. ETF tracks a particular index or sector and seeks to replicate its performance by owning the securities that make up the index or sector, no matter how broad or narrow a segment of the market it may be. Thus an ETF may include several dozen or sometimes several hundred or even several thousand securities. As the number of indexes continues to grow, there is an increasing variety of ETFs in which to invest.

The idea of a gold ETF was first officially conceptualised by Benchmark Asset Management Company in India when they filed a proposal with the Sebi in May 2002. It was not launched since it did not receive regulatory approval. The first gold exchange-traded fund actually launched was in March 2003 on the Australian Stock Exchange under Gold Bullion Securities. India which has gold worth Rs 24 lakh crore is also one of the largest consumers of gold in the world and absorbs around 700 tonne of the world’s annual consumption of about 3,200 tonne.

... contd.