HDFC Gold ETF to invest in gold derivatives in rare circumstances

HDFC Gold ETF will make investments in Exchange Traded Commodity Derivatives (ETCDs) only during temporary shortages of physical gold and will unwind them once normal market conditions return, according to HDFC Mutual Fund.

The fund house said that “This gold ETF will invest in ETCDs only where the scheme is unable to buy / sell physical gold due to temporary scarcity of physical gold. Once the market normalises and the scheme can buy / sell physical gold per its requirements, the corresponding ETCDs are expected to be unwound.”

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Further, the ETCDs will not be used as part of the scheme’s day-to-day strategy. This provision to allow HDFC Gold ETF to invest in Exchange Traded Commodity Derivatives (ETCDs) is an enabling provision and is in accordance with existing SEBI Regulations (Clause 3.2 of the SEBI Master Circular for Mutual Funds dated. June 27, 2024).

The core approach of the scheme, which is to deploy in physical gold to the maximum extent possible, and the balance will be in cash / net current assets, remains unchanged.

According to the fund house, the scheme held 15,262 kg of physical gold bars with a purity of 99.5% fineness or above, representing 98.65% of scheme's assets. Cash, Cash Equivalents and Net Current Assets accounted for 1.35% of scheme assets (as of February 28, 2026).

HDFC Mutual Fund announced changes in the structure of its gold ETF with effect from April 22, 2026. The fund house informed about these changes through a notice cum addendum, and the changes are structured as fundamental attribute changes.

According to the notice cum addendum, the fund will retain its 95-100% allocation to gold. The revised provision will allow to make investment in Gold Deposit Scheme (GDS), Gold Monetisation Scheme (GMS) and Exchange Traded Commodity Derivatives (ETCDs).

The fund house further said that cumulative exposure to gold-related instruments i.e. GDS of banks, GMS and ETCD having gold as the underlying, shall not exceed 50% of the net asset value of the scheme. However, within the 50% limit, the investment limit for GDS of banks and GMS as part of gold-related instruments shall not exceed 20% of the net asset value of the scheme.

The unutilized portion of the limit for GDS of banks and GMS can be utilised for ETCD, having gold as the underlying.

The notice cum addendum also highlights risk factors associated with investments in Exchange Traded Commodity Derivatives (ETCDs), which includecommodity risk, liquidity risk, price risk and settlement-related risk.

In line with regulatory requirements, on account of the change in fundamental attributes being proposed, the fund house is offering an exit window or exit option of 30 days to existing unit holders from March 23, 2026, to April 21, 2026 (both days inclusive). These changes will be effective from April 22, 2026.

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During the exit option period, unit holders not consenting to the change may either redeem their units by selling them on stock exchanges viz. NSE / BSE, where the units are listed; or redeem their units amounting to Rs 25 crore and above and in creation unit size directly with the AMC/Fund at Intra-day NAV.

Redemption of units from the scheme may entail capital gain/loss in the hands of the unitholder. For unit holders who redeem their investments during the exit option period, the tax consequences as set forth in the SID of the scheme and SAI of the fund would be applicable.

In case of NRI investors, TDS shall be deducted from the redemption proceeds in accordance with the prevailing income tax laws. In view of the individual nature of tax consequences, Unitholders are advised to consult their professional tax advisors for tax advice.

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