Several mutual funds temporarily suspend fresh investments in gold fund-of-funds. Here’s why

Were you planning to invest in gold funds this festive season? Tough luck: several fund houses have stopped accepting fresh investments in gold fund-of-funds (FOFs), although you can still invest in gold exchange-traded funds (ETFs).

There has been no official circular from the regulators on this matter so far. However, the step is understood to be another move to stabilise the rupee, which has been under pressure against the US dollar this year.

In an addendum issued late on October 15, Tata Mutual Fund said it would temporarily restrict lump-sum purchases and new systematic investment plan (SIP) registrations or applications for the Tata Gold ETF FOF, effective October 16.

“Notice is hereby given that all fresh/additional lump-sum purchases, switch-in transactions, top-ups, new SIP registrations and new Systematic Transfer Plan (STP) registrations into the Tata Gold ETF FOF shall be temporarily restricted from the above-mentioned effective date,” it said.

Several other fund houses have also stopped accepting fresh investments in gold FOFs.

“Investors/Unitholders are requested to note that subscriptions in DSP Gold ETF FOF through lump-sum mode including switch-in transactions, fresh registrations of SIPs including modification of existing SIP with top-up facility and/or systematic transfer plans, and fresh registrations for transfer of income distribution cum capital withdrawal shall be temporarily restricted with effect from October 16, 2026, until further notice,” a DSP MF notice read.

Gold funds have seen huge inflows over the past couple of years amid broader equity-market volatility driven by global geopolitical uncertainty.

According to data from the Association of Mutual Funds of India (AMFI), gold ETFs saw inflows of nearly Rs 4,451 crore in September 2026. Net assets under management in gold ETFs stood at more than Rs 1.86 lakh crore as of September 30, 2026 — more than double the Rs 90,136 crore recorded on September 30, 2025.

“It is like a soft signal, don’t go towards gold,” a fund manager at a larger AMC told Business Today.

Gold FOFs are a major source of funds flowing into gold ETFs, which explains the move to temporarily curb inflows, he said.

The fund manager added that there are no restrictions so far on investing in gold ETFs, and investors can still buy gold through that route. However, he was unsure how long it would remain open if gold ETF investments surge now that the gold FOF route has been temporarily closed. Investors should note that purchasing ETFs requires a demat account, unlike investing in a FOF, which can be bought directly from a fund house.

Separately, one can also explore electronic gold receipts, which are available on NSE and BSE.

When you invest in a gold FOF, the fund does not buy physical gold directly. Instead, the pooled money is invested in the fund house’s underlying gold ETF. Gold ETFs are backed by physical gold, so any additional money flowing into them must be backed by more physical gold.

India is one of the world’s largest consumers of gold. In 2025, the country’s gold demand stood at 710.9 tonnes. Much of the gold consumed in India is imported, and gold has consistently been among the largest components of the country’s import basket.

Authorised dealers must purchase gold in the international market using US dollars, putting further pressure on the rupee. India also runs a trade deficit, to which gold imports add.

The move to curb gold FOF investments follows several other measures taken in recent days to stabilise the rupee.

In recent days, the Reserve Bank has opened a special US dollar window for public-sector oil marketing companies, while a foreign exchange risk reserve (FERR) has also been announced. Rules governing banks’ provision of non-deliverable foreign exchange derivatives to clients were also tightened.

These measures have helped lift the rupee against the US dollar. The rupee closed at around 96.72 on October 9, 2026, and at 95.05 on Thursday, October 15. On Friday, October 16, it opened even higher at 94.72 against the greenback.

Whether the temporary suspension of inflows into gold FOFs will curb demand for the precious metal — or simply push buyers towards the physical market during the festive season — remains to be seen.