Muthoot Finance to offer loans against gold ETF units

MuthootFinance Ltd, which claims to be the largest gold finance NBFC in India, onFriday said it will now offer loans against Gold ETF (Exchange Traded Funds)units as security.

Will gold continue to shine?

Launching the service, MuthootFinance Ltd Managing Director George Alexander Muthoot said that loans againstgold ETF units was a scheme through which Muthoot Finance plans to venture intoa totally new segment of gold financing, which would not only add value, butalso enable the company to service the financial requirements of newer customersegments.

The new scheme would come intoforce by this month end and would enable the customers to avail finance at therate of 15 per cent interest against their Gold ETF units to the extent of 85per cent of the Net Asset Value of ETFs.

Muthoot has tied up withBenchmark,for offering the service, which would be available at 30 branches ofMuthoot all over the country in the first phase and would be later extended toall 3,000 of its branches.

He said the company expects toextend up to Rs 1,000 crore worth of loans this fiscal.

Gold ETFs have seen a progressiverise in popularity throughout the country over the past two to three years,attaining a whopping size of over Rs 5,000 crore as of June this year,resulting out of active investments from over 320,000 investors, according toNational Stock Exchange Assistant Vice-President and Southern Region HeadSunita Anand.

Benchmark Asset Management CompanyPvt Ltd National Head-Sales Anil Desai said the golf ETF loan scheme by MuthootFinance Ltd would act as a source for investors in gold ETFs to raise fundsagainst their investment units during times of need, instead of selling thoseunits.

Commonly referred as 'paper gold',gold ETFs are mutual fund units issued by asset management companies against99.5 per cent purity physical gold deposited with a SEBI-registered custodian.

Gold ETFs are listed and traded onstock exchanges and can be bought and sold like stocks on a real time basis.

These funds are passively managedand mirror domestic gold prices. By enabling investors to invest in goldwithout holding it in physical form, gold ETFs offer a rather unique investmentopportunity to investors.