So, besides increasing the import duty to six per cent on Monday -- five times more than the one per cent that importers were paying last January -- it has allowed gold exchange-traded funds to put part of their gold holdings with banks for a nominal rate of interest.
The latter is good news for investors, as they could earn higher returns of 50-100 basis points by investing in gold ETFs. Gold ETFs have returned 10.18 per cent in the last one year.
In fact, if the fund houses choose, they can give higher returns of around 100 bps or a little more.
How? At present, banks like the State Bank of India pay 0.75 per cent annually (this figure could differ, depending on the bank) to customers who put gold in their gold deposit schemes.
In addition, fund houses incur a cost of 10 to 40 basis points when they keep gold with custodians.
Fund houses pay this from the annual expense ratio that they charge investors.
Most gold ETFs charge an expense ratio (percentage of the assets spent to run a fund) of 0.50 to nearly two per cent annually.
For example, Birla Sun Life Gold ETF charges 100 basis points as expense ratio.
So, when this proposal comes into effect, fund houses stand to save the money paid to custodians plus earn a fee for keeping the gold with banks.
Both combined, they stand to save and earn a good 100-125 bps.
Since
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