HDFC Gold ETF update: HDFC MF clarifies stance on holding physical gold after rule change

HDFC Mutual Fund has issued a clarification regarding the recent change in the fundamental attributes of the HDFC Gold ETF, stating that the scheme’s core investment strategy will remain unchanged and will continue to be focused on investing primarily in physical gold. The fund house said the modification only introduces an enabling provision and does not alter the basic structure or objective of the exchange-traded fund.

In a clarification dated March 24, 2026, the asset management company said the scheme has been allowed to invest in Exchange Traded Commodity Derivatives (ETCDs), but only in exceptional situations where the fund is unable to buy or sell physical gold due to temporary market shortages. The fund clarified that such investments are not intended to be part of the scheme’s regular strategy and will be used only when required to manage short-term constraints.

The revised limits state that up to 50% of the scheme’s net assets can be invested in gold-related instruments, with exposure to Gold Deposit Scheme (GDS) and Gold Monetisation Scheme (GMS) restricted to a maximum of 20% within this limit. The remaining 0–5% allocation may be invested in debt mutual fund units, in addition to debt and money market instruments. Overall, the scheme’s total exposure across all asset classes will continue to remain capped at 100% of net assets.

Changes and market conditions

The change follows a notice-cum-addendum issued earlier in March and is in line with existing Securities and Exchange Board of India (SEBI) regulations, which permit mutual fund schemes to use commodity derivatives under specified conditions. The fund house emphasised that once normal market conditions return and physical gold becomes available, any derivative exposure will be unwound and the scheme will revert fully to holding physical gold.

HDFC Mutual Fund also stated that the primary approach of the ETF remains to deploy assets in gold bullion of high purity, with only a small portion held in cash or cash equivalents as part of the scheme’s asset allocation requirements. As of February 28, 2026, the scheme held more than 15,000 kilograms of physical gold, accounting for nearly the entire portfolio, while a small balance was maintained in liquid assets for operational purposes.

What this means

The clarification comes after investors sought details on whether the change would increase risk in the gold ETF. The fund house said the amendment is only a technical provision to provide flexibility and does not change the scheme’s objective of tracking the price of gold over the long term.

The notice does not provide a specific reason for the change, but describes it as an update to the scheme’s investment provisions in line with regulatory guidelines and permitted instruments. The revision aligns the scheme document with the evolving regulatory framework that allows mutual funds to invest in gold-linked avenues beyond physical gold, including derivatives and gold monetisation–related instruments.

HDFC Gold ETF is an open-ended exchange-traded fund designed to replicate the performance of gold, subject to tracking error, and is considered suitable for investors seeking long-term exposure to gold prices.