Gold, silver get bigger role as SEBI tweaks MF valuation rules:
A hedge against global uncertainty and exchange rate volatility?
Feb 27, 2026
Synopsis
SEBI is set to change how mutual funds value gold and silver from April 1, 2026. Funds will use Indian stock exchange prices instead of LBMA. This allows more gold and silver in equity and hybrid schemes. Lifecycle funds can allocate 10% to gold and silver.
The Securities Exchange Board of India (SEBI) is set to change how mutual funds value gold and silver. Starting April 1, 2026, mutual funds, including gold and silver exchange traded funds (ETFs) will rely on polled spot prices published by recognised Indian stock exchanges. This marks a shift from the current practice where these mutual funds base their valuations on the London Bullion Market Association (LBMA) morning price. The LBMA price is converted into Indian rupees and adjusted for factors like currency fluctuations, customs duties, taxes, local premiums or discounts and transportation expenses.
Additionally, mutual funds are now allowed to dedicate a portion of their equity schemes to gold and silver instruments and permit hybrid schemes to invest in gold and silver exchange traded funds (ETFs).
Another key change is with the newly introduced life-cycle funds, where schemes can invest up to 10% in gold and silver ETFs, exchange traded commodity derivatives (ETCD) and infrastructure investment trusts (InvIT).
How will these changes impact mutual fund investors’ portfolios? Will increased exposure to gold and silver through mutual funds serve as a strong hedge against global uncertainties and fluctuations in exchange rate?
How do SEBI’s recent rules for gold, silver investments in mutual funds matter?
Shweta Rajani, head, mutual funds, Anand Rathi Wealth, told ET Wealth Online that SEBI’s recent changes bring gold and silver closer to everyday portfolios in a more structured and professionally managed way.
“Instead of investors having to decide separately how much to allocate to precious metals, fund managers will now be able to manage this exposure within the scheme itself,” explains Rajani.
Importance of tracking domestic spot pricing
Prithviraj Kothari, managing director, RiddiSiddhi Bullions Ltd., President of India Bullion and Jewellers Association Ltd (IBJA), says revised valuation of tracking domestic gold and silver prices will align mutual funds’ net asset value (NAV) calculation more closely with Indian spot prices of the same purity grade.
“This ensures that the NAV better reflects the actual replacement cost of acquiring or selling equivalent high-quality gold in India.”
Kothari, however, argues that for complete efficiency in pricing, further regulatory alignment is required.
Importance of hybrid funds investing in gold and silver
Rajani says allowing equity and hybrid funds to hold gold and silver within their residual allocation introduces an element of built-in diversification.
According to Rajani, under the new rules, investors may get limited exposure to precious metals without needing to make a separate allocation.
Rajani says the revised rule becomes a tool for fund managers to temporarily park cash, much like REIT exposure was permitted earlier but saw limited adoption.
Kothari is of view that the ability of equity and hybrid funds to hold precious metals improves diversification within a single product.
“Retail investors benefit through easier access, professional management, and regulated exposure to gold and silver without operational hassles. It also reduces concentration risk, especially for investors who may not independently allocate to commodities,” says Kotahri.
Impact of lifecycle funds that can allocate 10% to gold and silver
Nitin Agrawal, CEO, mutual funds, InCred Money, feels the allocation of 10% gold and silver to lifecycle funds genuinely tries to build a risk management mechanism.
“Imagine a 20-30 year maturity horizon having a direct impact in terms of equity market volatility, inflation-linked interest rate cycles and currency risk, which all can be managed by precious metals during the long-term horizon, which builds a natural hedge by way of product design,” he says.
Will having gold and silver in more categories of mutual funds provide investors with hedge against market downturns?
Agrawal says based on empirical evidence, the fact that gold has served as a natural hedge against equity is well-established.
“During the global financial crisis, gold has provided a better return profile on a relative basis, thus proving its value as a natural hedge asset. Silver due to its industrial use and limited supply, has also proven its worth as a precious metal. Thus, with SEBI creating this architecture for better-hedged portfolio should help retail investors at times of actual market volatility.
Rajani shares that having some exposure to gold in various fund categories can help bring a level of stability when the equity market is under stress. She feels the real effectiveness of this hedge depends on the amount of exposure investors end up holding across schemes.
“If allocation decisions are made at the fund level, investors may unintentionally accumulate more gold exposure than needed at a portfolio level. Over the long term, a structure led by equity for growth and debt for stability, with gold ideally replacing debt portion of the portfolio rather than becoming core growth driver,” says Rajani.
Kothari mentions that precious metals often move inversely to equities when the market is under stress and even a modest allocation can cushion volatility and reduce overall portfolio drawdowns.
[The Economic Times]
