More gold financial products to curb imports

You may soon have more options to buy gold without physically owning it. In a recent event, the RBI’s Deputy Governor stated that the Central Bank is looking at financial products,in the lines of gold ETFs, that will allow investors to take advantage of gold price movements without having to physically own it.

Currently gold ETFs and gold fund-of-funds are offered by mutual funds to buy and sell gold without the physical hassle of holding them. While the former allows you to buy gold through the stock exchanges, if you have a demat account, you can buy gold fund-of-funds through the usual mutual fund channels.

There are also private placement of gold bonds by a few gold loan companies. But some of these schemes came under the RBI’s probe in 2011.

The current plan of the RBI may be to launch products in the form of financial products handled by banks. The RBI may be hoping to reduce the massive burden on the current account deficit of the nation, which was triggered by a surge in imports. Oil and gold account for a chunk of India’s import bill.

Over the last five years  value of gold imports jumped four times. Gold prices, both in the Mumbai market and in the London Metal Exchange rose 22 per cent annually. Ten grams of gold that sold at Rs 9137 (Mumbai rates) in end FY-07 rose to over Rs 25,700 in FY-12. Increase in investor interest is attributed to be one reason behind this phenomenal rise.

This increase was also visible in sale of ETFs. Gold ETFs sold in India rose from just Rs 99 crore in the 2007  fiscal to a whopping Rs 5264 crore in the financial year ending March 2012. And yet, the interest in physical gold has not faded, although volumes imported dipped a bit in the June quarter.

It is for this reason that the RBI is looking at introducing more simple financial products that help you ride gold price movements.