Several mutual fund houses stopped accepting fresh investments in gold fund-of-funds from mid-October. These curbs affect new lump-sum payments, SIP registrations, and switch-ins. Investors who still want exposure to gold can use Gold ETFs instead. These ETFs remain open for trading and offer a simple way to track gold prices.

Synopsis

Several mutual fund houses have temporarily stopped accepting fresh investments in gold fund-of-funds, impacting investors. These changes affect new lump-sum investments, SIP registrations, and switch-ins, leading to uncertainty. Gold fund-of-funds invest in Gold ETFs rather than physical gold, providing easier access for retail investors. For those unable to invest in gold fund-of-funds, Gold ETFs remain a viable option with no current restrictions.

Several mutual fund houses have temporarily stopped accepting fresh investments into gold fund-of-funds (FoFs), leaving investors wondering whether they can continue investing through existing SIPs and what alternatives are available. Here is what the restrictions mean and what investors can do if they still want exposure to gold.

WHAT ARE GOLD FUND-OF-FUNDS (FOFs), AND HOW DO THEY WORK?

Gold FoFs are mutual fund schemes that invest in Gold ETFs rather than buying physical gold directly.

When an investor puts money into a Gold FoF, the fund manager uses that money to purchase units of a Gold ETF. The Gold ETF, in turn, invests in physical gold. As a result, a Gold FoF’s value generally moves in line with gold prices.

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They offer a simple way to invest in gold through the mutual fund route without needing a demat account. Investors can buy and redeem units like any other mutual fund scheme while gaining exposure to changes in gold prices.

WHY HAVE SOME MUTUAL FUND HOUSES RESTRICTED FRESH INVESTMENTS IN GOLD FOFs?

Several fund houses have temporarily stopped accepting fresh investments in Gold FoFs from mid-October. The restrictions include fresh lump-sum investments, new SIP registrations and switch-ins, though they differ across schemes.

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While fund houses have not disclosed specific reasons behind the move, industry participants believe it may be linked to concerns over rising gold imports and strong inflows into gold investment products. As these ETF units are backed by physical gold, sustained inflows into such products can translate into higher demand for imported gold.

CAN’T INVEST IN A GOLD FOF? WHAT ARE THE OTHER OPTIONS?

Gold ETFs are one of the closest alternatives for investors seeking exposure to gold through market-linked investments. While there are restrictions on fresh investments in several Gold FoFs, there are none on their ETFs.

HOW ARE GOLD ETFs DIFFERENT FROM GOLD FOFs?

Gold FoFs are generally more convenient for retail investors because they can be bought and redeemed like any other mutual fund scheme without requiring a demat account. Gold ETFs can only be bought and sold through a demat and trading account.

Gold ETFs typically have lower costs because investors bear only the ETF’s expense ratio. In a Gold FoF, investors indirectly bear the expenses of both the FoF and the underlying ETF.

Liquidity also differs. Gold ETFs can be bought and sold on stock exchanges during market hours, while Gold FoFs are purchased and redeemed at the day’s closing net asset value (NAV), like regular mutual funds.

However, unlike Gold FoFs, their ETFs do not offer the convenience of a mutual fund SIP. Though many brokers have SIP facilities for buying ETFs and stocks, they are perceived to be relatively less user-friendly. Also, not all ETFs are liquid. Some of them might be trading at a premium to the ETF’s NAV.

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