The Securities and Exchange Board of India (SEBI), the regulator of the Indian stock market, has recently taken a decision which can directly affect your investment style and the returns you get from it. If you invest in Equity Mutual Funds, now your money will not be limited only to stock market companies. Under the new rules of SEBI, now equity mutual funds are allowed to invest a part of their portfolio in precious metals like gold and silver. This step has been taken mainly with the aim of making mutual fund schemes more flexible and diversified according to market movements.
Will gold and silver provide security or will profits decrease?
Traditionally, equity mutual funds have mainly invested in corporate stocks. The balance left after investment is usually held in cash, debt instruments or other fixed assets. But as per the revised rules, now actively managed equity funds, after meeting their core investment requirements, can invest up to a maximum of 35% of the remaining corpus in gold, silver and infrastructure investment trusts (InvITs).
With this new system, fund managers have got a big tool in their hands to deal with the market. Shivam Pathak, founder of Asset Elixir, says that this relaxation gives fund managers the power to manage the portfolio better during huge fluctuations in the market. When there is a downward trend in the stock market, this investment in precious metals can act as a ‘protective shield’.
Identity of equity fund will change
Since the basic objective of equity funds is to earn long-term profits through shares, the question arises whether the addition of commodity will make the structure of these funds like hybrid funds? Chirag Muni, Executive Director of Anand Rathi Wealth Limited, completely rejects this. He says that the purpose of this change is not to change the form of equity funds.
Gold and silver generally move in a different direction from equities, providing an excellent hedge for a portfolio. While gold acts as a ‘portfolio stabilizer’, silver directly benefits from rising industrial demand in sectors like electronics and solar energy. Experts believe that fund managers will rarely fully utilize the upper limit of 35%. This will primarily be used to protect the portfolio in volatile markets, so the basic character of your fund will remain share-based.
Danger of ‘portfolio overlapping’
Nowadays many investors already invest separately in Sovereign Gold Bond (SGB), Gold ETF or directly in gold. Now if your equity mutual funds also start investing in gold and silver at their own level, then the share of these metals in your total investment may inadvertently exceed the prescribed limit. To avoid this situation, investors should immediately review their overall asset allocation. Chirag Muni advises that investors should focus on balancing the entire portfolio rather than individual investments.
- Ideally, an investor’s portfolio should have around 20% exposure to debt.
- If you want to invest in gold, it can be kept within this debt allocation.
- Investors need to understand that gold is a ‘defense asset’ which protects from downside, whereas silver is not very suitable for long-term strategic investments due to its volatile nature.
If your portfolio is small or you have just started investing, then investing in separate gold and silver funds can be avoided.
Is money completely safe in the commodity market?
It is true that gold and silver diversify the portfolio, but they also have their own risks. Commodity prices are increasingly influenced by the global economy, currency fluctuations and geopolitical events. A big example of this was seen in January 2026, when a huge decline of 9 to 10% in Gold ETFs and 15 to 24% in Silver ETFs was recorded in a single trading session. Moreover, excessive exposure to commodities can reduce the growth potential of an equity fund in the long term, as equities always give better returns than commodities in the long term.
Nevertheless, experts believe that the risk for investors will remain minimal. The exposure to these metals in equity mutual funds will be very limited and ‘tactical’. Fund managers will selectively use this option only when there is geopolitical tension, rising inflation or when stock market valuations appear too expensive.
Disclaimer: This article is for information only and should not be considered as investment advice in any way. TV9 Bharatvarsha advises its readers and viewers to consult their financial advisors before taking any money-related decisions.