Summary of this article
Fund houses restrict bulk inflows into gold ETFs
Surging paper gold interest creates severe cash drag
Import duty hikes and currency pressures force curbs
Several asset management companies have limited inflows into their gold exchange traded funds (ETFs) and select fund of funds (FoFs) schemes. These announcements come at a time when retail and institutional interest in paper gold investments is soaring amid an increase in gold prices
Earlier on June 4, 2026, HDFC Mutual Fund announced that bulk subscriptions of Rs 25 crore or more into the HDFC Gold ETF would be blocked starting June 8. The fund house also capped lump sum purchases and switch-ins for the HDFC Gold ETF FoF at Rs 10 lakh per investor per month, effective from June 5.
Following the announcement, ICICI Prudential Mutual Fund also announced a restriction on direct lump sum subscriptions exceeding Rs 25 crore in ICICI Prudential Gold ETF, effective June 8.
Later during the week, Nippon India Mutual Fund placed a structural cap on fresh lump sum subscriptions and new systematic investment plans (SIPs) for the Nippon India Gold Savings Fund, while SBI Mutual Fund systematically adjusted its daily intake capacity by enforcing strict per-day ceilings on the SBI Gold Fund.
Why are Fund Houses Capping Investment in Gold ETFs
Asset management companies (AMCs) are capping inflows into gold ETFs and FoFs due to a combination of regulatory boundaries, supply chain disruptions, and global currency pressures. Fund houses have cited reasons, such as broader economic and market conditions as the primary driver for the temporary freeze.
Notably, the curbs were introduced amid policy discussions regarding precious metal imports and their implications on India’s external account. Earlier in May, the government raised the effective import duty on gold from 6 per cent to 15 per cent. India imports nearly $70 billion worth of gold annually and the massive surge of domestic retail money into Gold ETFs is likely to have forced fund houses to import more physical bullion.
By slowing down inflows, fund houses are supporting economic stability and stopping a spike in import demand that would otherwise widen India's current account deficit and put downward pressure on the rupee. Gold ETFs are legally required to be fully backed by actual, physical 99.50 per cent pure gold stored in secured vaults.
Hypothetically, if the curbs were not introduced and fund houses continued to accept new orders they would not be able to instantly deploy it into physical gold at fair institutional rates. This in turn would result in idle cash sitting in the fund and create a “cash drag”, which leads to a tracking error where the fund’s net asset value (NAV) fails to match the actual rising spot price of gold.
What Should Investors Do?
Investors are continuously on the lookout for investing options in paper gold. Individual market participants seeking alternative exposure to paper gold can invest in Reserve Bank of India’s government-backed sovereign gold bonds (SGBs) in the secondary market, and electronic gold receipts (EGRs), which are traded on the NSE and the BSE.
