HDFC Gold ETFs allow commodity derivatives investment due to scarcity of physical gold

Tue Mar 24 2026

HDFC Mutual Fund will now allow its gold ETF schemes to invest in exchange-traded commodity derivatives (ETCDs), a provision designed to come into play only when physical gold is scarce or temporarily unavailable.

Starting April 22, the fund can use gold-linked derivatives in such situations, instead of relying solely on buying physical gold.

ETCDs are contracts traded on exchanges where the value depends on gold prices. Fund managers can use them to manage liquidity or meet short-term requirements when physical gold is not easily available.

The fund house said ETCDs will be used only in rare cases, saying in a notice to investors that, “Investment in ETCDs will only be considered in rare circumstances where the scheme is unable to buy / sell physical gold due to temporary scarcity of physical gold. Once the market normalizes and the Scheme can buy / sell physical gold per its requirements, the corresponding ETCDs are expected to be unwound”

This practice is already prevalent in the mutual fund industry. Hemen Bhatia, CEO of Angel One, said his firm had already included such a provision earlier. He said, “We launched our Gold ETF in September 2025 and take small ETCD exposure as outlined in the scheme document as and when required for cash management perspective.”

A senior executive from a large mutual fund said the regulation has always allowed such exposure. He noted that gold derivatives exposure can go up to 50%, while silver ETFs have it capped at 10%. He added that many asset management companies already mention gold and gold-related derivatives in their documents. According to him, this is an update from HDFC Mutual Fund due to launching their ETF earlier and not including this provision in their scheme information document. Overall, the change does not alter the core objective of tracking gold prices. Investors are unlikely to see any major impact, as the use of ETCDs will remain limited and temporary.

Source: https://cafemutual.com/