Equity mutual fund schemes may soon incorporate precious metals as fund houses have made gold and silver exchange-traded funds (ETFs) part of their active equity and hybrid schemes. According to reports from Business Standard, most fund houses announced these additions through an addendum last week, approximately 6 months after the Securities and Exchange Board of India (Sebi) allowed all non-debt active schemes to take gold and silver exposure. The changes align schemes with the revised categorisation framework announced by Sebi on February 26, 2026.
The extent of gold and silver ETF provisions varies significantly across fund categories, reflecting their respective asset allocation mandates. As reported by Business Standard, several flexicap funds have provided for up to 35% precious metal ETF exposure, while largecap funds have declared a 20% upper limit. Multicap funds have set the maximum limit at 25%. Largecap funds must mandatorily invest 80% of assets in largecap stocks, while flexicap funds require minimum equity exposure of 65%. Some fund houses have set even lower ceilings, with Parag Parikh Flexicap Fund establishing a 20% ceiling for gold and silver exposure.
Bandhan MF was the first fund house to utilize the new framework, adding provisions for gold and silver ETFs to its flexicap, smallcap and aggressive hybrid funds in April. According to Business Standard, the three schemes tweaked asset allocation patterns to include up to 10% exposure to gold and silver ETFs. Neil Parekh, CEO of PPFAS MF, described the provision as an enabling measure, stating "It is just an enabling provision. In future, when we think it makes sense to invest, we have the flexibility to do so."
Sebi's decision to allow gold and silver exposure emerged after a sharp rally in the two commodities, which had become key alternative assets amid heightened global uncertainty. As reported by Business Standard, the move was intended to give fund managers greater flexibility to diversify portfolios when equity valuations become stretched and market conditions turn uncertain. Industry executives noted that gold and silver can provide an additional avenue for portfolio diversification when fund managers see limited opportunities in equities.
Several schemes have clarified to investors that investment in gold and silver ETFs will be made based on various factors, including commodity fundamentals, macro-economic factors like inflation and interest rates, demand and supply, volatility and market sentiment. According to Business Standard, fund managers will use these precious metals opportunistically with the aim of improving risk-adjusted returns and capturing commodity opportunities where suitable listed-equity plays may not be available.
