Why have fresh investments into gold FoFs been halted, and what should you do?

Summary

Restricting FoF inflows serves to limit foreign exchange leakage.

About 20 mutual fund houses have reportedly halted fresh lump-sum investments, new SIPs (systematic investment plans) and top-ups in gold fund of funds (FoFs) following regulatory directives on 15 and 16 October. The step, as explained by experts, is designed to curb domestic gold import demand and relieve pressure on the rupee during the festive season, without disrupting direct ETF (exchange traded fund) investments.

What changes?

The fund houses of State Bank of India, Kotak Mahindra, ICICI Prudential, HDFC, Tata and DSP, along with others, have restricted new incremental flows into gold FoFs, though existing active SIPs will continue.

“Fund houses have taken action only in gold fund of funds, not in gold ETFs,” clarified Anil Ghelani, head of passive investments at DSP Mutual Fund.

He emphasized that this is not a market-driven liquidity issue, unlike what was previously seen in micro-cap or small-cap funds, where massive inflows into relatively less liquid stocks created real risks during redemption in the category, while gold remained fully liquid. Also, the restriction targets only one specific entry route.

“Today, if you want to buy any gold ETF, it is listed and actively traded on the NSE and BSE. You can go there and buy at any point in time,” Ghelani added.

A gold FoF acts as a feeder pipe that invests in underlying gold ETFs. At DSP Mutual Fund, the gold FoF has ₹500 crore-600 crore of assets under management, representing roughly 20% of the ₹3,000 crore gold ETF total size. According to data from DSP MF, the total industry size of gold FoF stood at ₹47,359 crore as of August compared with ₹53,638 crore in March and ₹22,837 crore in September 2025.