Artha Bharat has introduced India's first physically backed gold fund at GIFT City's IFSC, holding about 95% of its assets in bullion. The fund currently faces operational hurdles, including pending regulatory approvals for trading and a lack of infrastructure designed for long-term investment funds.
Artha Bharat has launched a physically backed gold fund based in the International Financial Services Centre (IFSC) at GIFT City. The fund is structured as a trust and holds physical gold through vault depository receipts, with approximately 95% of its total corpus invested in gold bullion. FinMet, a firm based in Singapore, acts as the execution partner for its gold transactions.
Operational and Infrastructure Challenges
While the company has secured in-principle approval, it is currently awaiting final licensing. The launch has encountered several hurdles related to the existing bullion ecosystem. The current infrastructure at the India International Bullion Exchange (IIBX) is primarily optimized for jewellers rather than investment funds. Artha Bharat has faced significant delays, including a six-month process to onboard a custodian, and it is currently working to appoint a trading member and broker.
Existing systems were largely shaped by the India-UAE Comprehensive Economic Partnership Agreement (CEPA), which allows for lower customs duties on gold imports for jewellers, provided the gold is moved out of GIFT City within 11 days. This short-term framework creates friction for an investment vehicle designed for long-term gold holding, as trading members are currently not fully equipped to accommodate trusts as members.
Regulatory and Market Context
Investors should note that the CEPA gold import quota is presently subject to a High Court stay due to an unresolved dispute regarding allocation methods. Any future changes to this quota framework could impact the bullion ecosystem at GIFT City. Unlike domestic gold ETFs regulated by SEBI, which may hold derivative exposure, Artha Bharat’s fund relies on a purely physical backing.
The fund has set a total expense ratio of 0.65%, which includes costs for management, insurance, and storage. Pricing for the fund is benchmarked against the London Bullion Market Association (LBMA) rate, with an additional premium of approximately $20 per ounce to account for insurance and transportation. Anchor investors have already committed about $5 million, and the firm intends to increase this to at least $10 million through monthly commitments.
Investor Monitorables
The fund allows for redemptions in cash, physical gold, or a mix of both. For those choosing to redeem in gold, there is a minimum requirement of 100 grams, and investors must maintain an account in GIFT City to facilitate the transfer. Moving forward, the most important updates to track include the receipt of the final license, the successful onboarding of a trading member, and the resolution of the High Court matter regarding the CEPA import quota.