HDFC, ICICI Prudential, Tata Mutual Fund halt fresh investments in gold ETF FoFs ahead of festive season

Tata Mutual Fund, HDFC Mutual Fund and ICICI Prudential Asset Management Company on Thursday issued notices halting fresh investments in their gold fund-of-funds (FoFs), ahead of the festive season.

The notices, seen by ET Online, do not specify a reason for the restrictions. Investors can continue to redeem their existing investments, according to the notices.

Tata Mutual Fund said fresh and additional lump-sum investments, switch-ins, top-ups and new systematic investment plan (SIP) and systematic transfer plan (STP) registrations in Tata Gold ETF FoF would be temporarily restricted from October 16.


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“Further, Instalments under existing SIP/STP registrations (registered prior to the effective date) shall continue and be processed at applicable NAV,” the fund house said.

Indian Bullion and Jewellers Association (IBJA) president Surendra Mehta confirmed the move to ET Online. He said the restrictions could have been introduced to avoid a rush into gold FoFs during the festive season, similar to last year's trend.

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A source told ET Online that the Reserve Bank of India had sent a document on the matter to the Securities and Exchange Board of India (SEBI) for consideration.

The move comes as the rupee has lost about 7% this year, making it one of Asia's worst-performing currencies. The depreciation has increased India's import bill, while foreign investors have also sold Indian equities, Reuters reported. Strong gold demand has added to the pressure on the rupee, prompting the government to raise import duties on gold and silver to 15% from 6% earlier this year.

India, the world's second-largest consumer of gold after China, imports roughly 700–900 tonnes of the yellow metal every year.

With geopolitical tensions driving up commodity prices and putting pressure on the rupee, a hefty gold import bill is an added burden for India and can widen the country's trade deficit.

Gold imports fell sharply to $1.8 billion in September from $2.3 billion in August. However, demand for gold in India typically rises during the festive season when people buy the yellow metal on Dhanteras and Diwali as this period is considered auspicious.

Inflows into gold and silver ETFs surged during last year's festive season as investors turned to precious metals amid weak returns from the stock market.