HDFC Mutual Fund has revised the structure of its Gold ETF, and the new changes will come into effect from April 22. The fund has described this as a fundamental attribute change.
Under the revised rules, 95% to 100% of the scheme’s funds will continue to be invested in gold. However, the scheme will now also be allowed to invest in gold-related instruments such as:
Gold Deposit Schemes (GDS)
Gold Monetization Schemes (GMS)
Exchange-Traded Commodity Derivatives (ETCDs)
According to the new framework, the maximum exposure to these gold-related instruments can be up to 50% of net assets. Within this, GDS and GMS together will have a limit of 20%.
The remaining 0% to 5% of the funds will be invested in debt mutual fund units, debt instruments, and money market instruments.
Commodity Derivatives to Be Used Only When Needed
The revised framework also includes details about the risks linked to commodity derivatives, such as:
price volatility
low liquidity
price differences compared to physical gold
settlement risks
In a clarification issued on March 24, HDFC Mutual Fund said that investment in ETCDs is not part of the scheme’s regular strategy. Instead, it is only an enabling provision, which means it will be used only if required.
The fund stated that such investments will be made only in rare situations, for example, when there are temporary difficulties in buying or selling physical gold.
It also said that investment in these instruments will be stopped once market conditions return to normal.
Free Exit Window for Existing Investors Till April 21
HDFC Mutual Fund said it will continue to focus on maximizing investment in physical gold under its Gold ETF scheme.
As of February 28, around 98.65% of the scheme’s assets were invested in physical gold.
The new provisions will be implemented next month, and existing investors can withdraw their investment without any exit load until April 21.
If investors do not exit by then, they will automatically continue under the new investment framework.
The fund also said that these changes have been approved by the AMC and trustees, and Securities and Exchange Board of India has taken note of them.
Why Is This Change Being Made?
HDFC Mutual Fund has not clearly explained the exact reason for this change.
However, it said that the revision has been introduced as an update to regulatory provisions and approved investment instruments.
This change will allow mutual funds to make limited investments in gold-related instruments apart from physical gold, whenever needed.
