Equity Mutual Funds May Soon Invest in Gold and Silver: How Will It Impact Investors?

The Securities and Exchange Board of India’s latest tweak to mutual fund rules might seem subtle at first glance, but it could actually shake things up quite a bit in how equity mutual funds operate in India.

What’s the big change? Equity mutual funds might soon be allowed to invest up to 35 per cent of their assets in gold and silver—either directly or through Exchange Traded Funds (ETFs). Now, they still have to keep at least 65% in listed equities to retain their equity fund tag, but that remaining slice just got a whole lot more interesting.

“Until now, fund managers didn’t have too many flashy options for that leftover portion—mostly just cash, debt instruments, or arbitrage. However, incorporating gold and silver into the portfolio presents investors with new possibilities for diversification. And the timing couldn’t have been better. The growing investor attention toward precious metals is evident from June 2025 gold ETFs receiving Rs 2,081 crore in inflows while silver ETFs attracted almost Rs 4,000 crore during Q2 FY25. That’s no small change,” says Nikunj Saraf, VP, Choice Wealth.

Why the buzz around metals? Well, gold has long been the go-to during uncertain times—kind of like a financial safety net. It’s not just a store of value, but also a solid hedge against inflation and geopolitical drama. Silver, on the other hand, plays a double role. It’s part commodity, part currency—used heavily in industries. So, it tends to track economic activity, while still holding its monetary shine.

Bringing these into equity portfolios could add a nice buffer during rough patches, potentially making the overall risk-return profile even better.

“Of course, this isn’t all upside. With commodities now entering equity funds’ playground, the line between pure equity funds and hybrid funds might start to blur. Investors will need to read the fine print more carefully—things like fact sheets and risk meters will matter even more to understand exactly where their money’s going,” says Saraf.

How Will Investors Get Impacted?

According to financial planners, the move to allow equity mutual funds to invest in gold and silver is a good development and a welcome move for Indian investors. Today, we already have pure gold funds, silver funds, and even multi-asset allocation schemes that include gold or silver alongside equity and debt. In fact, to qualify as a multi-asset fund, SEBI mandates a minimum of three asset classes.

“The addition of gold and silver into investment portfolios has been practiced before, but enabling this flexibility within equity mutual funds creates additional strength. The change allows investors to integrate hedging capabilities directly into equity schemes through this modification,” says Santosh Joseph, CEO, Germinate Investor Services.

Throughout history, gold and silver have functioned as natural protective assets which hedge against equity market instability and rising inflation and worldwide uncertainty. Equity funds, which include small portions of gold and silver assets, can minimize potential losses and strengthen the overall portfolio stability. This approach makes things easier for investors.

“Investors who want diversification through multiple products now receive a single fund that provides balanced diversification. The flexible approach when used prudently within established boundaries enhances the risk-adjusted performance of equity schemes. Fund managers and investors in India now have access to better tools for long-term wealth creation through this development,” observes Joseph.

SEBI also wants gold and silver prices to base their valuation on Indian spot prices instead of using international market prices. The change would create more transparent pricing which aligns with Indian market conditions leading to positive reception from most investors.

Overall, this initiative represents an intelligent strategy which moves towards future developments. Fund managers now hold an expanded set of tools to work with, which could lead investors toward more resilient portfolios in today’s volatile markets.