HDFC Mutual Fund has updated the structure of its Gold ETF, and these changes will come into effect from April 22. The fund has called this a “fundamental attribute change.”
Under the new rules, 95–100% of the fund’s money will still be invested in gold.
However, the fund can now also invest in gold-related instruments like Gold Deposit Schemes (GDS), Gold Monetization Schemes (GMS), and Exchange-Traded Commodity Derivatives (ETCDs).
There are limits on these investments. A maximum of 50% of the net assets can be invested in such instruments, while only up to 20% can be invested in GDS and GMS. The remaining 0–5% of the fund will be invested in debt mutual fund units, along with debt and money market instruments.
Investment in Commodity Derivatives Only When Needed
The fund has explained the risks linked to commodity derivatives, such as high price volatility, low liquidity, differences in price compared to physical gold, and settlement risks.
In a clarification issued on March 24, HDFC Mutual Fund said that investing in ETCDs is not part of its regular strategy. It is only an optional provision, meaning the fund will use it only if required.
The fund plans to invest in such derivatives only in rare situations, for example, when there are temporary problems in buying or selling physical gold. Once the market conditions return to normal, these investments will be stopped.
Free Exit Option for Existing Investors
HDFC Mutual Fund has said it will continue to focus mainly on physical gold investments in its Gold ETF. As of February 28, about 98.65% of its assets are already invested in physical gold.
With these changes being implemented next month, existing investors are being given a free exit option.
They can withdraw their investments without paying any exit load until April 21. After this date, they will have to continue under the new rules.
These changes have been approved by the Asset Management Company (AMC) and trustees, and have also been noted by SEBI.
Reason Behind the Change
HDFC Mutual Fund has not clearly stated the exact reason for this update. However, it appears to be part of changes in regulatory rules and approved investment options.
This update allows mutual funds to invest, in a limited way, in gold-related instruments apart from physical gold.