Mutual funds suspend fresh investments in gold, silver FoFs ahead of festive season

Following a regulatory nudge ahead of a seasonal spike in demand, several mutual fund houses, including HDFC, Kotak, ICICI Prudential, Nippon, Tata, UTI and Birla, have temporarily suspended fresh lump-sum investments, switch-ins and new SIP registrations in their gold and gold-silver exchange-traded fund (ETF) fund-of-funds (FoFs) from Friday.

While several fund houses issued public notices announcing the restrictions, none explicitly cited the reasons. However, industry and Association of Mutual Funds in India (Amfi) sources told TNIE that the move followed regulatory advice amid expectations of a surge in gold and silver demand during the upcoming festive and wedding seasons.

The restrictions vary across fund houses and schemes. While some have suspended fresh lump-sum investments, switch-ins and new systematic investment plan (SIP) and systematic transfer plan (STP) registrations, others have directly informed investors about the curbs.

Existing investments, ongoing SIPs and units already purchased will remain unaffected. Investors can continue to hold their investments or redeem their units, as usual.

The restrictions apply specifically to gold and silver ETF fund-of-funds, which invest in the underlying ETFs. They do not cover direct investments in gold and silver ETFs traded on the NSE and BSE through demat accounts.

The move is aimed at moderating the surge in investment demand for precious metals, which could add to gold and silver imports and put further pressure on the rupee and India’s trade balance. The decision follows informal discussions and guidance involving mutual fund houses, Amfi and the Securities and Exchange Board of India (Sebi), the sources said.

The curbs come ahead of several festivals and the busy wedding season, when demand for precious metals typically rises. Similar restrictions were imposed in June this year.