India Opens Mutual Funds to Gold
India's markets regulator overhauled mutual fund scheme rules, increasing the permissible allocation to gold and silver in mutual fund portfolios. This move could have ripple effects on commodity prices and fund construction, especially for investors with international exposure or interests in precious metals as portfolio diversifiers. The regulatory change opens new opportunities for Indian mutual funds to incorporate higher precious metals exposure.
The Securities and Exchange Board of India's (SEBI) decision allows actively managed equity funds to invest up to 35% of their assets in gold and silver instruments, a significant increase from previous regulations that did not explicitly provide for such allocations within this category. Previously, multi-asset funds were required to hold a minimum of 10% in at least three different asset classes, which often included gold. This regulatory shift comes as India's mutual fund industry is experiencing rapid growth, with assets under management (AUM) reaching ₹81.01 trillion as of January 31, 2026. The industry's AUM has seen a more than six-fold increase over the past decade, signaling a growing investor base and a shift towards financial assets. Projections indicate the AUM could surpass ₹300 trillion by 2035. The new rules could channel a substantial portion of this growing capital pool into precious metals, creating fresh institutional demand. This is particularly relevant in a country where gold is a deeply ingrained part of the culture and household savings. Indian households are estimated to hold around 30,000 to 34,600 tonnes of gold, with a value potentially exceeding $5 trillion. India is the world's second-largest consumer of gold, and its demand patterns significantly influence global prices. While household purchases have traditionally been for jewelry and physical investment, there has been a notable surge in demand for financial gold products like Gold ETFs, which saw record inflows in January. This financialization of gold savings points to an increasing investor appetite for exposure through regulated instruments. In a related move to enhance transparency, SEBI has also mandated a new valuation method for gold and silver held by mutual funds, effective April 1, 2026. Funds will be required to use polled spot prices from recognized domestic stock exchanges, replacing the current system based on the London Bullion Market Association (LBMA) prices adjusted for various costs. This overhaul aims to standardize valuations, making them a better reflection of domestic market conditions and making it easier for investors to compare schemes. The combined changes are part of a broader effort by the regulator to tighten classification norms, curb portfolio overlaps between different fund types, and enhance investor protection in the expanding fund industry.
