Leading gold loan companies from south India have discovered an opportunity in a new line of finance, namely, gold Exchange Traded Funds (ETF). They have realised that providing loan against gold ETFs represents a Rs 4,400-crore business opportunity for them.
Muthoot Capital Service (MCS), a Muthoot Pappachan Group company, has already launched the product here last week. Speaking to reporters here, R Manomohanan, chief executive officer of MCS, said that the loan against ETFs takes care of the issue of liquidity that the investors are facing.
Investors can take loan after pledging or transferring the gold ETFs to the company. MCS has fixed the interest rate for the loan at 18%, he said. With gold prices shooting up, the demand for ETFs has been going up in the country. The assets under management (AUM) for gold ETFs stood at Rs 4,400 crore as on March 31, 2011. It was at around Rs 660 crore in March 2009, according to the data released by NSE.
The total number of investors, which stood at 2.5 lakh at the end of 2010, has gone up to 3.4 lakh as on March 31, 2011. Of this, nearly 3.2 lakh are retail investors while HNIs and corporates account for the rest.
The growing popularity of gold ETFs is clear from the tremendous response it got on the Akshaya Tritiya day.
The volume of gold ETFs on NSE on May 6, the Akshaya Tritiya day, was at Rs 423.05 crore as against Rs 172 crore last year. The number of people who participated in the trade doubled and stood at 80,000 as against 40,000 on the previous year's Akshaya Tritiya day. The total number of gold ETFs traded increased to 20 lakh from 10 lakh last year. Other leading companies are also planning to launch similar products.
