Securities and Exchange Board of India (SEBI) issued a sweeping circular that fundamentally overhauls the mutual fund rulebook. A headline change in this reform is the decision to allow active equity schemes to significantly increase their exposure to gold and silver.
Previously, equity funds were restricted from investing in precious metals. Under the new framework, fund managers can now use these commodities as a critical diversification tool to protect against market volatility.
The “35% Rule”: New Flexibility for Equity Funds
SEBI has expanded the “residual portion” of equity schemes—the part of the portfolio that remains after meeting core equity allocation requirements.
- Broadened Asset Classes: Equity mutual funds can now invest up to 35% of their corpus in a combination of non-equity instruments, which now includes:
- Physical Gold and Silver (via ETFs).
- Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs).
- Money market and liquid securities.
- Core Mandate: This 35% limit applies to the “residual” portion, meaning the fund must still maintain its primary category-defined equity allocation (e.g., 80% for Value/Contra funds) before utilizing this new gold/silver flexibility.
- Goal: To provide a “defensive toolkit” for fund managers, allowing them to hedge against stock market crashes or high inflation by pivoting into hard assets without needing to move into cash.
New Valuation Norms (Effective April 1, 2026)
Alongside the allocation hike, SEBI has changed how these metals are priced within your fund to ensure better transparency.
- Shift to Domestic Prices: Mutual funds will stop using the London Bullion Market Association (LBMA) AM fixing prices. Instead, they must use polled spot prices from Indian stock exchanges.
- Reasoning: This aligns fund valuations with the actual prices used to settle physical bullion contracts in India, accounting for local customs duties and taxes more accurately.
Wider Mutual Fund Overhaul
The gold and silver hike was part of a larger structural reform of the $900 billion Indian MF industry:
| Category | Key Change |
| Life Cycle Funds | A new category of “target-date” funds that automatically shift from equity to debt/gold as you approach a goal (e.g., retirement). These can hold up to 10% in gold/silver. |
| Solution-Oriented | Retirement and Children’s funds have been discontinued and will be merged into other categories to reduce clutter. |
| Portfolio Overlap | SEBI now caps the overlap between a fund house’s different schemes at 50% to prevent them from selling “duplicate” funds under different names. |
| New Categories | The total number of MF categories has increased from 36 to 40, including the introduction of Sectoral Debt Funds. |
Context: The “Gold Rush” of 2026
This regulatory shift follows a historic moment in January 2026, when for the first time, inflows into Gold ETFs surpassed inflows into equity mutual funds in India (₹24,039 crore vs ₹24,028 crore). By allowing equity funds to buy gold directly, SEBI is essentially “formalizing” the massive retail demand for precious metals within institutional portfolios.
