Indian mutual funds can now include gold and silver ETFs within equity schemes to help diversify portfolios. This regulatory update, effective since April 2026, provides fund managers with tactical flexibility to hedge against market volatility. While it offers a new way to manage risk, it remains an optional strategy for fund houses to use when they believe equity markets require additional protection.
Indian mutual fund managers now have a new tool to navigate shifting market conditions following a regulatory update by the Securities and Exchange Board of India (SEBI). Since April 1, 2026, non-debt active mutual fund schemes have been permitted to invest in gold and silver exchange-traded funds (ETFs). This change allows fund managers to allocate a portion of their portfolio into precious metals, providing a potential hedge when equity markets face significant volatility or macroeconomic uncertainty.
Flexibility Over Mandate
It is important for investors to understand that this move is an enabling provision, not a requirement. Fund managers are not forced to buy precious metals. Instead, the regulation gives them the freedom to decide if and when these assets fit into their portfolio strategy. The decision depends entirely on the fund house’s view on market conditions, inflation, and interest rates. For example, some fund houses have already updated their scheme documents to allow for this flexibility, setting internal limits on how much of the fund’s total assets can be held in gold or silver. While some schemes have opted for lower exposure, such as 10 percent, others have created headroom for up to 35 percent in their flexicap funds to accommodate potential commodity exposure.
Valuation and Regulatory Shifts
This shift also involves changes to how these assets are valued. Previously, funds often looked to international benchmarks like the London Bullion Market Association (LBMA) for pricing. Under the updated regulatory framework, funds have transitioned to using domestic exchange-polled spot prices. This move is designed to make the valuation of gold and silver holdings more consistent with the prices available in the Indian market. However, investors should be aware that this change in valuation methods can sometimes lead to minor differences in how the funds track global commodity trends.
Risks to Consider
While the addition of gold and silver can offer diversification, it also introduces specific risks that investors should monitor. Gold and silver prices are influenced by global macroeconomic factors, currency fluctuations, and geopolitical events, which do not always move in sync with the stock market. Silver, in particular, carries higher price volatility than gold because it is used in both jewelry and industrial applications. If industrial demand slows down, the price of silver can fluctuate significantly. Additionally, while ETFs are generally liquid, very large allocations during times of extreme market stress could potentially face challenges in execution. Investors should keep an eye on how individual fund houses manage these commodity holdings and whether they prioritize stability or tactical gains.
For those looking into these funds, the next step is to review the latest fact sheets or scheme information documents provided by your mutual fund house. These documents will clarify whether the specific scheme you hold has adopted this flexibility and what limits they have placed on their precious metal exposure.