Over 17 Mutual Funds Halt Fresh Subscriptions in Gold ETF FoFs Ahead of Festive Demand

In an unexpected development ahead of the Dhanteras and Diwali festive rush, around 17 Indian mutual fund houses have temporarily halted fresh subscriptions in their Gold Exchange Traded Fund (ETF) Fund of Funds (FoFs). The restrictions, which took effect in mid-October, apply to prominent fund houses including HDFC Mutual Fund, ICICI Prudential Mutual Fund, Kotak Mahindra Asset Management, Tata Mutual Fund, Aditya Birla Sun Life Mutual Fund, and SBI Mutual Fund.

The curbs specifically target feeder funds that channel domestic retail capital into underlying gold ETFs, blocking fresh lump-sum inflows, switch-ins, and new systematic investment plan (SIP) or systematic transfer plan (STP) registrations until further notice.

Regulatory Underpinnings and Macro Concerns

The decision follows regulatory instructions from the Securities and Exchange Board of India (SEBI) communicated through the Association of Mutual Funds in India (AMFI). While the addendums issued by asset management companies did not publicly cite explicit reasons, industry officials confirmed the move is intended to stem soaring import demand for bullion during peak festive consumption.

India imports over 90% of its domestic gold requirement, making the metal one of the single largest components of the nation's import bill alongside crude oil. Sustained gold inflows exacerbate the trade balance, widen the current account deficit (CAD), and exert downward pressure on the Indian rupee against the US dollar.

Data from AMFI highlighted that gold ETFs attracted net inflows of ₹4,451 crore in September alone, up 71% from ₹2,597 crore recorded in August. Between January and September, net inflows into gold ETFs reached approximately ₹45,926 crore, surpassing the ₹42,961 crore recorded during the entire calendar year of 2025. Because FoFs must purchase units of underlying ETFs—which in turn require fund houses to back new unit creation with physical bullion in accredited vaults—restricting the feeder route serves to dampen aggregate demand.

Scope of the Curbs: What Is Blocked and What Continues

The temporary ban applies strictly to inflows from new commitments, leaving existing arrangements untouched:

Transactions Suspended: * Fresh lump-sum purchases and additional investments in Gold ETF FoFs and select Gold-Silver FoFs. * Registrations of new systematic investment plans (SIPs) and top-up increments on existing plans. * New systematic transfer plans (STPs) and switch-ins from other mutual fund schemes.

Transactions Allowed: * Ongoing instalments for SIPs and STPs registered prior to the cut-off dates. * Redemption requests, switch-outs, and systematic withdrawal plans (SWPs). * Direct trading of Gold ETFs listed on the National Stock Exchange (NSE) and BSE.

Available Alternatives for Indian Investors

With the non-demat mutual fund route largely constrained, Indian investors seeking portfolio hedges or traditional festive allocations must assess alternative channels:

1. Direct Gold ETFs on Bourses Unlike FoFs, direct Gold ETFs remain fully functional on stock exchanges. Retail investors with active demat and trading accounts can execute buy orders on the NSE and BSE. However, analysts advise investors to review the fund's Indicative Net Asset Value (iNAV) before placing market orders, as secondary market surges can cause units to trade at temporary premiums to the intrinsic value of physical gold.

2. Sovereign Gold Bonds in the Secondary Market Although the Government of India paused new primary issuances of Sovereign Gold Bonds (SGBs), previously issued tranches continue to trade on the secondary market. SGBs provide exemption from capital gains tax upon redemption at maturity, along with a 2.5% annual coupon, though trading volumes and secondary market price disparities vary across series.

3. Physical Gold and Regulated Digital Platforms Investors seeking immediate festive possession retain traditional routes such as physical coins, bars, and jewellery from Bureau of Indian Standards (BIS) hallmarked jewellers, albeit subject to 3% Goods and Services Tax (GST) and making charges. Regulated digital accumulation platforms also provide micro-saving capabilities, provided counterparty and custodial backing are carefully verified.

Tags: SEBI AMFI HDFC Mutual Fund ICICI Prudential Mutual Fund Kotak Mahindra AMC Gold ETFs