Gold ETF: Kotak MF, UTI, HDFC Halt Fresh Investments Ahead Of Festive Season

Several large Indian mutual funds have suspended bulk subscriptions to gold exchange-traded funds (ETFs) ahead of the festive season, when demand for precious metals typically rises, according to a Reuters report.

Kotak Mahindra Mutual Fund, UTI Mutual Fund and HDFC Mutual Fund issued public notices late on Thursday announcing the restrictions. The fund houses did not specify a reason for the move, while redemptions from the schemes remain unaffected.

The decision followed a nudge from the Securities and Exchange Board of India (Sebi), according to a mutual fund executive familiar with the discussions. Two bullion industry officials also confirmed to Reuters that the suspension followed discussions with the market regulator.

Why Have Mutual Funds Restricted Gold ETF Subscriptions?

The move comes amid

pressure on the Indian rupee, which has been weighed down by elevated global crude oil prices and heavy selling by foreign investors in domestic equities. Higher oil prices have increased India’s import bill, while strong demand for gold has added to pressure on the currency.

The government raised import duties on gold and silver earlier this year amid concerns over precious metal imports and their impact on the country’s external finances.

India is the world’s largest consumer of silver and the second-largest consumer of gold, relying heavily on imports to meet domestic demand. A sustained rise in precious metal imports can widen the country’s trade deficit and increase demand for foreign currency.

Gold imports declined to $1.8 billion in September from $2.3 billion in August. However, demand typically strengthens during the festive season, with Dussehra in October and Diwali in early November considered auspicious occasions for buying gold.

Festive Demand Raises Import Concerns

The restrictions come ahead of a period when gold purchases traditionally increase and investors often step up allocations to precious metals through exchange-traded funds. Inflows into gold and silver ETFs surged during last year’s festive season as investors turned to precious metals amid lacklustre returns from the stock market, Reuters reported.

The suspension has raised questions about whether the move is intended to prevent a seasonal surge in gold imports, particularly as bullion demand picks up ahead of Diwali.

A dealer at a private bank that supplies bullion to ETFs told Reuters that the decision was surprising because gold and silver imports had fallen sharply over the preceding two months compared with a year earlier and had not contributed to the trade deficit.

“It looks more like a precautionary measure to avoid a surge in imports in October,” the dealer said, according to Reuters.

The restrictions apply to bulk subscriptions, while investors’ ability to redeem their existing ETF holdings remains unaffected.