The Securities and Exchange Board of India (Sebi) has amended its Custodian of Securities Act to enable the custodians of the proposed Gold Exchange Traded Funds (GETFs) to outsource the safekeeping of bullion to outside agencies. The amendment in the Act would pave the way for the launch of GETFs in the country.
Allowing the custodians to outsource the safe custody of gold in GETFs, Sebi, however, said the custodians would remain responsible to its client (mutual funds) for safekeeping of the gold kept with other person, including any associated risks.
Further, Sebi added, "All books, documents and other records relating to the gold so kept with the other person shall be maintained in the premises of the custodian or if they are not so maintained, they shall be made available therein, if so required by the board."
The stock market regulator also said the custodian of securities would "continue to fulfil all duties to the clients relating to the gold so kept with the other person, except for its physical safekeeping.
Reacting to the amendment, Chairman of Association of Mutual Funds in India (Amfi) said most banks, which would enter the custodial business in GETFs, preferred to safe-keep the bullion with an outside agency. "The amendment in the Custodian of Securities Act will now allow mutual funds to launch GETFs," he said.
Fund houses, including Benchmark, UTI AMC and DSP-Merrill Lynch Fund Managers, have announced the launch of GETFs in India.
Rajan Mehta, managing director, Benchmark Asset Management Company, said, "The Sebi has fulfilled our demand and now we expect it to clear our application to launch gold ETF. Once it happens, we are ready to launch the fund."
Only those banks which hold the RBI licence to trade in gold are likely to get the Sebi nod for custodial service in GETFs.
Industry officials said banks such as ICICI Bank, Bank of Nova Scotia, State Bank of India, HDFC Bank and a few others are likely to enter the business of custodial services in gold.
They are, most likely to rope in an outside agency for the safekeeping of the gold, they said.
Globally, there are reputed players which undertake the business of safekeeping of the bullion for banks.
