Ahead of the festive season, leading mutual fund houses such as Tata Mutual Fund, HDFC Mutual Fund and ICICI Prudential Asset Management Company on Thursday issued notices halting fresh investments in their gold fund-of-funds (FoFs).
With investments in FOFs of these fund houses being suspended, can it affect the investments of existing investors? What options do those investors have who wanted to invest in FoFs of these fund houses?
What does Tata Mutual Fund say about stopping fresh investments in gold FoFs?
Tata Mutual Fund said fresh and additional lump-sum investments, switch-ins, top-ups and new systematic investment plan (SIP) and systematic transfer plan (STP) registrations in Tata Gold ETF FoF would be temporarily restricted from October 16.
The fund house, however, says existing SIP/STP investments, redemptions, switch-out, and existing Systematic Withdrawal Plan (SWP) will continue even during the suspension period.
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What does Tata Mutual Fund and other MF houses stopping fresh investment mean?
Prithviraj Kothari, president, India Bullion and Jewellers Association Ltd (IBJA), says the trigger is macroeconomic, not a shortage of gold. The rupee touched around 96.7 to the dollar on October 9, and gold is one of India’s biggest imports. Gold ETF inflows also jumped 71% in September to Rs 4,451 crore. Industry officials say the curb came on SEBI’s instructions, passed on through the Association of Mutual Funds in India (AMFI), to slow the dollars leaving the country during the festive season.
Adil Chacko, Executive Director, Anand Rathi Wealth, told ET Wealth Online that the move appears to be aimed at moderating gold demand and easing pressure on India's import bill and the rupee.
Does it mean investors can’t invest in other gold mutual fund schemes of Tata, HDFC and ICICI Pru fund houses?
Chako says that fund houses have paused fresh investments in their Gold FoFs, which invest in gold exchange traded funds (ETFs).
“The ETFs themselves continue to trade on the stock exchanges, so the restriction is specifically on investing through these FoFs, not on buying gold through ETFs directly,” says Chacko.
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What will happen to the investments of existing gold FoF investors of these mutual fund houses?
Kothari says existing investors are largely unaffected.
“SIPs, STPs and switches registered before the cut-off continue as scheduled, so ongoing accumulation goes on. Your units stay invested, and the net asset value (NAV) still tracks domestic gold prices through the underlying ETF,” says Kothari.
Aarav Bafna, Director, Akoirah by Augmont, says a FoF’s NAV tracks its underlying gold ETF, and therefore domestic gold prices, so the pause does not alter the value of existing holdings.
What does it mean for new investors who were about to invest in gold FoFs of the HDFC, Tata and ICICI Pru mutual fund houses?
Checko says new investors will not be able to make fresh investments in the affected gold FoFs while the pause remains in place.
“If they wish for gold exposure, they can opt for Gold ETFs,” says Chacko.
Kothari suggests the main alternatives are gold ETFs bought directly on NSE or BSE, which remain open and need only a demat and trading account.
“Because these trades happen between buyers and sellers on the exchange, they don’t force fund houses to import fresh bullion,” opines Kothari.
Kothari also recommends Sovereign gold bonds from the secondary market, physical coins and bars from reputable refiners and digital gold as other gold investment routes.
Bafna also suggests investing in electronic gold receipts on the exchanges.