Several large Indian mutual funds issued public notices late on Thursday suspending bulk subscriptions to gold exchange-traded funds, just ahead of the festive season when investor demand typically rises.
The notices from the fund houses, including Kotak Mahindra Mutual Fund, UTI Mutual Fund, and HDFC Mutual Fund, did not cite a reason for the move. There is no restriction on redemptions from these funds.
The decision was taken following a nudge from the Securities and Exchange Board of India, according to a mutual fund executive familiar with the discussions. Two bullion industry officials confirmed the halt had followed discussions with the market regulator.
The sources declined to be identified as they are not permitted to comment on discussions with the regulator.
A spokesperson for SEBI did not respond to a Reuters request for comment outside business hours.
The Indian rupee has been under pressure this year due to a surge in global oil prices, which have inflated the country’s import bill, and heavy selling by foreign investors in Indian equities. Strong demand for gold has further weighed on the currency, prompting the government to raise import duties on gold and silver earlier this year.
India, the world’s largest consumer of silver and second-largest consumer of gold, relies on imports to meet most of its demand, a dependence that can sometimes widen its trade deficit.
Gold imports fell to US$1.8 billion ($2.6 billion) in September, from US$2.3 billion in August. However, Indians will celebrate Dussehra in October and Diwali in early November, when buying gold is considered auspicious.
Inflows into gold and silver ETFs surged during last year’s festive season as investors turned to precious metals amid lackluster stock market returns.
The move is surprising, as gold and silver imports have fallen sharply over the past two months from a year earlier and have not contributed to the trade deficit, said a dealer at a private bank that supplies bullion to ETFs.
“It looks more like a precautionary measure to avoid a surge in imports in October,” the dealer said.
(Reporting by Ira Dugal and Rajendra Jadhav in Mumbai; Editing by Shilpi Majumdar)
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