HDFC Mutual Fund has decided to change the fundamental attributes of HDFC Gold ETF. The most significant modification proposed by the fund company is that the HDFC Gold ETF will now have the provision to invest in Exchange Traded Commodity Derivatives (ETCDs). What this means is that the fund can now invest in the gold futures market.
What Changes
Under the current mandate, the HDFC Gold ETF has to invest between 95-100% in gold that includes physical Gold and other gold-related instruments, and investment in Debt Securities and Money Market Instruments is allowed up to 5%. The provision to invest in Exchange Traded Commodity Derivatives (ETCDs) does not exist today.
Under the revised provisions, while the allocation remains the same, the exposure to gold (between 95-100%) will include physical Gold and other gold-related instruments, which may be permitted by SEBI from time to time as per Clause 3.2 of the Master Circular dated June 27, 2024.
Clause 3.2 of the Master Circular dated June 27, 2024 allows Exchange Traded Commodity Derivatives (ETCDs) having gold as the underlying to be considered as a ‘gold-related instrument’ for Gold ETFs.
Clarification
HDFC Mutual Fund has clarified that investment in ETCDs will only be considered in rare circumstances where the Scheme is unable to buy or sell physical gold due to temporary scarcity of physical gold. Once the market normalizes and the Scheme can buy or sell physical gold per its requirements, the corresponding ETCDs are expected to be unwound.
The Scheme does not intend to use ETCDs as part of the scheme’s day-to-day strategy. The core approach of the Scheme remains unchanged – Scheme assets will be deployed in physical gold to the maximum extent possible, and the balance will be in cash or net current assets, as per the Scheme’s Asset Allocation.
As of Feb 28, 2026, HDFC Gold ETF Scheme held 15,262 kg physical gold bars with purity of 99.5% fineness or above, representing 98.65% of Scheme assets, while cash, cash equivalents and net current assets accounted for 1.35% of scheme assets.
Exit Option
The existing investors have been given the option to exit, while the new rule takes effect from April 22, 2026. An Exit Option has been made available for existing Unit holders from March 23, 2026, to April 21, 2026, allowing a 30-day period to exit due to proposed changes in fundamental attributes.
The exit offer is optional and the unit holders need not act if they consent to the proposed change, which will be assumed to have consented to the proposed change.
Gold ETF
Gold exchange-traded funds (ETFs) are investment vehicles that hold gold as the underlying asset and trade on stock exchanges. They offer a cost-effective ownership model, with an expense ratio around 0.8%, significantly lower than the costs (making charges) associated with owning physical gold, such as jewellery. Additional costs, like Demat charges and tracking errors, are still less than those for physical gold, and Gold ETFs also eliminate concerns about purity, safety, and storage.