HDFC Mutual Fund Proposes Changes to HDFC Gold ETF Structure

HDFC Mutual Fund has announced proposed changes to the investment structure of its HDFC Gold ETF, categorised as a fundamental attribute change. The revised provisions are scheduled to take effect from April 22. The update aims to expand the scheme’s investment flexibility while maintaining its primary focus on physical gold.

Under the revised framework, the exchange-traded fund will continue to allocate 95% to 100% of its assets to gold. However, it will also be allowed to invest in certain gold-linked instruments, providing the fund with additional options in specific market conditions.

Expanded Investment Options

The revised structure permits the scheme to invest in instruments such as Gold Deposit Schemes (GDS), Gold Monetisation Schemes (GMS), and exchange-traded commodity derivatives (ETCDs). These instruments are linked to gold but differ from direct physical holdings.

Despite this broader scope, the fund has set clear limits on such investments. The total exposure to gold-linked instruments will be capped at 50% of the scheme’s net assets. Within this limit, exposure to GDS and GMS will have a sub-limit of 20%.

The remaining 0% to 5% of the portfolio may be allocated to units of debt mutual funds, along with other debt and money market instruments. Overall exposure across all asset classes will continue to remain capped at 100% of the scheme’s net assets.

Risk Disclosures and Regulatory Compliance

The addendum accompanying the changes also introduces specific risk disclosures related to commodity derivatives. These risks include potential price volatility, liquidity constraints, differences between derivative pricing and physical gold prices, as well as settlement risks.

In a clarification issued on March 24, the fund stated that the provision allowing investments in ETCDs is primarily an enabling measure rather than a core part of the scheme’s regular investment strategy. Such exposure would likely be used only in exceptional situations, such as temporary constraints in buying or selling physical gold in the market.

The fund also noted that it will continue to prioritise physical gold investments. As of February 28, physical gold accounted for about 98.65% of the scheme’s assets.

Exit Option for Investors

Since the proposed modification is classified as a fundamental attribute change, investors have been given the option to exit the scheme without an exit load until April 21. Investors who do not redeem their units during this period will be considered to have accepted the revised investment structure.

The changes have been approved by the asset management company and trustees, and have also been noted by the Securities and Exchange Board of India.

Also Read: Mutual Funds Take a ₹50,000 Crore Hit Amid HDFC Bank Sell-Off!

Conclusion

The proposed changes to the HDFC Gold ETF structure aim to provide limited flexibility in investing in gold-linked instruments while maintaining the scheme’s strong focus on physical gold. With defined exposure limits and additional risk disclosures, the update reflects efforts to align the fund’s framework with regulatory provisions and evolving market practices while continuing to prioritise gold-backed investments.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a private recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.