So far, MFs were allowed to hold such gold deposit certificates only in dematerialised or electronic forms.
"Gold certificates issued by banks in respect of investments made by gold ETFs in GDS (Gold Deposit Scheme) can be held by mutual funds in dematerialised or physical form," the Securities and Exchange Board of India (Sebi) said in a circular today.
Sebi said the circular has been issued "to protect the interests of investors in securities and to promote the development of, and to regulate the securities market".
Earlier this year, the market watchdog had allowed gold ETFs of mutual funds to invest in GDS of banks, as part of its efforts to utilise idle assets of the precious metal for more productive purposes.
As per the norms, total investment by gold ETFs in GDS cannot exceed 20 per cent of total asset under management of such schemes.
It was also stated that before investing in GDS, mutual funds would have to put in place a written policy related to the investment with due approval from the Board of the Asset Management Company and the Trustees.