In a landmark decision, India’s securities regulator SEBI has unveiled sweeping changes to mutual fund categories, opening doors for active equity schemes to invest in gold and silver. Announced on Thursday from Mumbai, this move aims to enhance portfolio diversification and offer investors broader exposure to precious metals without shifting to specialized funds.
Traditionally, equity mutual funds have strict mandates on minimum equity allocations. For instance, large-cap funds must park at least 80% in top-tier stocks, leaving the remainder for debt, money market instruments, or even mid- and small-cap shares at the fund manager’s discretion. SEBI’s new circular expands this flexibility, allowing the residual portion to flow into gold and silver instruments, including ETFs and related derivatives, all while adhering to existing regulatory caps on InvITs and other assets.
“Equity-oriented schemes can now allocate their non-mandated portions to a mix of equities, liquid assets, gold, silver instruments, and InvITs within prescribed limits,” SEBI clarified in its directive. This change is poised to attract risk-averse investors seeking inflation hedges within their equity portfolios.
Beyond precious metals, SEBI has discontinued retirement and children-focused solution-oriented schemes, replacing them with a new ‘Lifecycle Funds’ category. These funds come with predefined maturity periods ranging from 5 to 30 years, dynamically adjusting allocations—starting equity-heavy and gliding toward safer debt as maturity nears. To promote long-term holding, exit loads up to 3% apply in the first year, though redemptions remain possible.
Lifecycle Funds can invest across equities, debt, REITs, InvITs, commodity derivatives, and gold/silver ETFs, providing a structured path for goals like retirement or education. In another tweak, SEBI bumped the cap on active equity and hybrid schemes per fund house from 11 to 12, greenlighting both value and contra funds provided their portfolios overlap by no more than 50%.
Thematic and sectoral funds face stricter portfolio uniqueness rules: at least 50% must diverge from the house’s other equity offerings (excluding large-cap funds). These reforms signal SEBI’s push for innovation, transparency, and investor protection in India’s booming $50 trillion mutual fund industry, potentially channeling fresh inflows into diversified assets.