Indian mutual funds are shifting from traditional gold and silver to a wider range of commodities using Specialized Investment Funds (SIFs). This move leverages derivatives to offer new arbitrage and trading strategies to retail investors. While this expands portfolio options, investors should remain aware of the inherent volatility and risks associated with commodity markets.
Indian mutual funds are evolving their approach to commodities. For years, the asset class was limited largely to physical gold or silver, often treated as a safe haven or a hedge against inflation. Now, the industry is moving toward a more active role in the broader commodity market, utilizing the Specialized Investment Fund (SIF) framework to gain exposure to a wider variety of assets.
This shift is supported by recent regulatory changes. As of April 1, 2026, the consolidation of the MF Lite and SIF categories has provided a clearer path for asset management companies to create funds that can invest in commodity derivatives, such as futures and options. This allows managers to move beyond passive holdings and implement strategies like commodity arbitrage, which seeks to profit from price differences in the market.
Market data highlights the growing importance of passive investing in this space. As of July 2026, the passive fund industry manages approximately Rs 15.15 lakh crore. Out of this, commodity-focused passive funds account for Rs 2.51 lakh crore. However, investor interest in traditional gold ETFs has shown signs of cooling. In July 2026, gold ETF inflows dropped to Rs 1,558 crore, a notable decrease from the Rs 3,443 crore recorded in June, suggesting that investors may be looking for more diverse or performance-oriented options in the current climate.
Fund houses, including Edelweiss Mutual Fund and Tata Mutual Fund, are among those exploring these new possibilities. The intent is to make sophisticated commodity strategies—previously limited to high-net-worth investors or institutional players—accessible to the broader retail public. SEBI is also consulting on proposals to allow Foreign Portfolio Investors greater access to non-agricultural commodity derivatives, such as crude oil, natural gas, and base metals, which could further increase liquidity and improve price discovery in these markets.
Investors should, however, consider the risks that come with this evolution. Unlike physical gold, which is often held for long-term stability, broader commodity markets are highly cyclical and volatile. Prices of energy and base metals often react sharply to global geopolitical events, supply chain disruptions, and shifting demand patterns.
There are also operational challenges. Handling commodity derivatives involves complex logistics, including warehouse registration and physical delivery processes, which the regulator is currently working to streamline. For the average investor, this means that funds focusing on these areas will carry different risk profiles than traditional equity or debt schemes. The success of these new offerings will likely depend on the fund managers' ability to navigate market volatility and manage the operational complexities of derivatives. Investors should track future product launches and the specific strategies—whether arbitrage or direct commodity exposure—that these funds propose to implement.