Covid-19 lockdown on storage vaults presents problems for gold ETFs

The rise in floods coupled with Kovid-19 related disruption in the gold vault may force India’s gold funds and ETFs to temporarily stop further funding. SBI Mutual Fund has already stopped fresh lumps before coming into SBI Gold Fund and will also stop the ongoing system. Investment schemes (SIPs) and systematic transfer schemes (STPs) from 6 April. AMC cited a shutdown in the vaults by its storage provider, which is the reason for the flow to stop.

“Physical gold is held in the vaults through our patrons. Deutsche Bank is the custodian for SBI – ETF Gold and our vaulting agency is Brinks India Private Limited. In view of Kovid-19, Brinks India Pvt. Ltd. has informed that their vaults in Mumbai, Pune and Nagpur will remain closed as long as the condition of lock down remains. Accordingly, due to the above issue, we may not be able to accept any membership (including ON / new SIP, switch-in) until the operation resumes for normal functioning, “D.P. Singh, Executive Director and Chief Marketing Officer, SBI said Mutual Fund. SBI Gold Fund is a fund of funds (FoF) that invests in SBI Gold Exchange Traded Funds.

The latter is required to hold physical gold against paper units issued to investors. SBI Gold Fund Size is 434 crore (till 29 February) and the size of SBI Gold ETF is 963 crores Rs. Influence in gold ETFs in India’s mutual fund industry increased nearly 7-fold 202 crores in January 2020 1,483 crore in February 2020.

Physical market participants also noted the effect of coronovirus-related restrictions on gold trading. “The delivery of gold is not being done till date because gold is not covered under essential commodities due to lockdown. Surendra Mehta, national secretary of the India Exchange, Bullion and Jewelers Association Ltd, said that whenever the lockdown is lifted, trades are happening on the spot exchange.

The country’s largest ETF, Nippon India ETF Gold BES, including other asset management companies that have assets under management 3,105 crore has not yet announced whether this money will stop coming. “To date, we have been able to buy or sell gold on a flow basis. We are able to run our operations as usual till date. Kotak CEO Nilesh Shah said, in case of any unforeseen circumstances, where it will not be possible to manage the fund for the benefit of Unitylders as per the terms of the offer document, we will take appropriate action. Mutual fund which also has a gold ETF and a gold fowl.

Investors can also buy gold through sovereign gold bonds issued by the Government of India, which track the price of gold and pay interest of 2.5% per annum.

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