Recent restrictions imposed by some mutual funds on large investments into gold exchange-traded funds have sparked concerns among investors. But financial advisors say the impact on retail investors is limited, and the more important conversation is about diversification, particularly at a time when Indian equities have delivered muted headline returns and global markets have outperformed.
The latest restrictions from fund houses such as HDFC Mutual Fund, ICICI Prudential Mutual Fund and Nippon India Mutual Fund apply largely to high-value transactions in gold ETFs. Retail investors can still invest through SIPs and staggered purchases, with limits that remain well above what most individual investors typically deploy.
“The word is restriction only,” said Santosh Joseph, founder of Germinate Investor Services, speaking on NDTV Profit. “It doesn’t stop you from investing.” Joseph noted that investors can continue to access gold through multiple routes and that the restrictions are currently limited to a handful of fund houses.
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Why Gold Is Back in Focus
The restrictions come amid growing scrutiny of India’s gold imports. According to Mohit Gang, co-founder and CEO of Moneyfront, India imported more than 700 tonnes of gold last year. While volumes were slightly lower than the previous year, the value of imports increased sharply due to rising gold prices.
“India is completely obsessed or fascinated with gold and their appetite is ever growing,” Gang said. Demand for gold ETFs has also surged. Although ETF inflows remain small compared with overall gold consumption, they have been one of the fastest-growing segments of the market.
“There is a lot of sensitivity around this entire concept of importing gold because obviously India is suffering from the energy crisis and current account deficit is ballooning by the day and gold is our largest drag on the economy,” he said.
Even so, he does not expect the measures to significantly affect retail participation. “The limit of Rs 10 lakh per month is a pretty decent and wide limit for retail investors to go ahead and invest,” he said.
ALSO READ: ICICI Prudential MF Limits Big-Ticket Gold ETF Investments After HDFC MF
Are Investors Diversified Enough?
Both advisors argued that the discussion should not be limited to gold. Instead, it should prompt investors to think more broadly about diversification. Joseph described diversification using a familiar principle. “Don’t put all your eggs in one basket,” he said.
The objective is not merely to reduce risk, he explained, but also to improve the overall risk-return profile of a portfolio. “The concept of portfolio diversification is actually now time-tested. Number one, it reduces risk. Number two, if done well, it helps you also optimise returns.”
Gang argued that diversification goes beyond simply allocating money between equity, debt and gold. Investors should also diversify across investment styles, market capitalisations and geographies. One of his favourite rules of thumb is that a truly diversified portfolio should always contain something that is underperforming.
Both experts highlighted gold’s role as a hedge against currency depreciation. “For the last decade or so, we’ve benefited almost 30-40% extra return on a 10-year basis only on the depreciation of the rupee,” Joseph said.
Gang believes investors should maintain between 10% and 20% of their portfolios in commodities, primarily gold. “Given the new dimensions of the world, the geopolitical things and everything, I would tend towards the higher end of this term, which is 20% allocation to commodities.”
ALSO READ: HDFC MF Halts Gold ETF Investments Exceeding Rs 25 Crore; Limits FoF To Rs 10 Lakh
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