Kotak Mahindra, UTI and HDFC mutual funds have halted bulk subscriptions to gold exchange-traded funds ahead of Dussehra and Diwali, amid concerns that seasonal demand could widen India’s import bill and pressure the rupee.
Several large Indian mutual fund houses have temporarily stopped accepting bulk subscriptions into gold exchange-traded funds, a move that comes just as the country enters its peak festive buying season.
Kotak Mahindra Mutual Fund, UTI Mutual Fund and HDFC Mutual Fund were among the firms to issue notices late on Thursday, according to the report in The Hindu BusinessLine. The notices did not explain the reason for the change, and investors can still redeem units from the funds.
People familiar with the discussions told Reuters that the suspension followed a nudge from India’s Securities and Exchange Board, though the regulator did not immediately comment. The step appears to reflect a desire to curb a possible rush of fresh money into gold funds at a time when seasonal demand for the metal is normally strong.
The timing matters. India’s rupee has been under strain this year from higher oil prices, a heavier import bill and foreign outflows from domestic equities. Strong demand for gold has also added pressure, prompting the government to raise import duties on gold and silver earlier in the year. Because India imports most of the gold and silver it consumes, a sharp rise in purchases can widen the trade deficit.
That backdrop helps explain why the market has become sensitive to any sign of a seasonal import surge. Gold imports fell to $1.8 billion in September from $2.3 billion in August, but demand is expected to firm around Dussehra in October and Diwali in early November, when buying gold is traditionally seen as auspicious. A dealer at a private bank that supplies bullion to exchange-traded funds told Reuters the move looked like a precaution to prevent a fresh jump in imports during October, even though gold and silver shipments had already eased sharply over the previous two months.
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