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Reliance Gold Savings Fund reopens to investors

A. Ananthalakshmi and Siddesh Mayenkar
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Gold bars are displayed at a gold jewellery shop in the northern Indian city of Chandigarh

Gold bars are displayed at a gold jewellery shop in Chandigarh April 11, 2012. REUTERS/Ajay Verma/Files

By A. Ananthalakshmi and Siddesh Mayenkar

SINGAPORE/MUMBAI (Reuters) - India's third biggest gold fund will begin accepting fresh investments again after shutting off new buy-ins three months ago to support government efforts to curb bullion demand and control a rising trade deficit.

Reliance Gold Savings Fund, which manages about $300 million according to Lipper data, will begin accepting subscriptions from Wednesday after suspending inflows on August 1, according to a notice sent to investors.

The government and the central bank launched a series of measures this year to curb the country's appetite for gold as India battled a ballooning trade deficit and a weak currency. Gold is the biggest item on India's import bill after oil.

The gold fund is part of Reliance Capital , controlled by billionaire Anil Ambani. It ranks in India after exchange-traded funds run by Goldman Sachs and Reliance.

"The economic conditions are getting better and the dollar has come down...," said Sundeep Sikka, chief executive officer, Reliance Capital Asset Management, justifying the relaunch.

The rupee, which saw record weakness to 68.85 rupees per dollar in late August, has appreciated 11 percent since then. India's trade deficit narrowed last month following lower gold purchases and an increase in exports, supporting the rupee. Trade deficit hit a record in the year to March 2013.

Gold investors have been net sellers in the fiscal year from April 2013 till September, and analysts said there could be investments into the yellow metal going ahead.

"Investment interest in gold is expected to increase as the dollar is in the weakening mode with uncertainties which has led to a rally in gold prices. This could revive investment interest through the ETF route," said Gnanasekar Thiagarajan, a director with Commtrendz Research.

There has been a net outflow of about 12.26 billion rupees in the 14 ETFs, compared to an inflow of 2.97 billion rupees in the same period last year, data from the Association of Mutual Funds of India showed. Gold ETFs had about 104 billion rupees under management till September 2013, only 1 percent of the industry's asset under management.

However, the biggest challenge will be to find gold supplies as the government measures to slow imports have caused premiums in India to jump to $120 an ounce over London prices as supplies have been unable to meet demand.

"With the restart of this gold fund (by Reliance Mutual Fund), demand for physical gold will increase and this will again put pressure on supplies," said Bachhraj Bamalwa, a director at the All India Gems and Jewellery Trade Federation.

Imports have slowed to a trickle in India ahead of key festivals including Dhanteras, the biggest gold buying festival, next week and weddings thereafter.

"They should not have restarted at this critical moment. If this increases imports, government may be forced to impose further restrictions," said Bamalwa.

Earlier this year, Reliance said it would close the fund to fresh investment and suspend sales of physical gold to support the "policy objectives" of the government and the Reserve Bank of India. It was the only fund to do so.

India has imposed a 10 percent duty on imports of gold, and tied imports to exports. Imports have fallen to a mere 7 tonnes in September from a record 162 tonnes in May.

(Reporting by A. Ananthalakshmi in Singapore, Siddesh Mayenkar in Mumbai and Nishant Kumar in Hong Kong; editing by James Jukwey)