The Securities & Exchange Board of India (SEBI) has finally given permission to mutual funds (MFs) to park up a fifth (20 per cent) of their gold holdings in gold deposit schemes (GDS) run by banks.

The move aims at curbing escalating imports of gold and also to make better use of idle physical gold. In January, India's gold imports jumped to 100 tonnes, the highest level of gold imports in 18 months and up 23 per cent from the corresponding month of the previous year.

However, the capital market regulator's move failed to impress fund managers, who say that funds don't account for much of total gold imports. Thus, the move won't provide respite for the government, mainly because the move doesn't make GDS obligatory for MFs.

Dhirendra Kumar, chief executive of MF tracker Value Research, said, "Fund mangers are unlikely to get into this linking with gold deposit schemes as incentives for doing so are almost negligible."

Fund managers also disagreed with the claims that the capital market regulator's move could potentially hike returns on gold exchange traded funds by up to 50 bps to 100 bps.

The gold deposit schemes run by banks have so far not succeeded in attracting huge number of customers. These schemes let investors to deposit a minimum of 200 gram of gold in exchange for gold bonds, which carry an interest rate of 3 per cent 4 per cent, depending upon the term of the scheme.