SEBI, the markets regulator based in India, has extended the mutual funds regulation which handles about $385 billion of equity assets and has now allowed them to allocate up to 10 percent of their funds to gold by March 2026. The historic step is to diversify large-cap, mid-cap and flexi-cap schemes beyond stocks and debt to go into the safe-haven interest of gold on turbulent markets. It is announced as of February 26, 2026, and will improve returns, hedge inflation, and conform to worldwide trends where funds similar to Vanguard will incorporate commodities.
Why the Policy Shift?
The consultation paper released by SEBI dealt with the stagnant inflows of equity -15% year-on-year- down despite Nifty gains. Stabilizing portfolios, gold, which rises 25% in 2025, on geopolitical tensions, has correlation of low (0.2). Whereas direct holdings were previously prohibited in equity funds, such as Sovereign Gold Bonds (SGBs) or units, direct holdings were previously limited to only gold ETFs or FoFs. New standards will limit exposure to 10% total, including 5% limit in gold equivalents, which will guarantee 80 percent equity emphasis.
Asset Management Companies (AMCs) such as HDFC, SBI and ICICI Prudential lobbied flexibility after 2024 gold rush. The SGB auctions of RBI were at high demand record, yet retail access was sluggish. This opens up the potential inflows of $38 billion, which will enhance AUM growth to 20 per cent per annum.
How It Works for Investors
Flexi, mid/small-cap, large-cap can invest in:
Gold ETFs (spot-tracked exchange-traded funds).
Gold FoFs (gold scheme funds).
SGBs (gold appreciation, maturity tax free, govt bonds yielding 2.5%).
None of them physically barred; all through controlled instruments. Old investors receive grandfathering, no forced sales. New NFOs are to reveal gold strategy in SID. Riskometer moves to very high in the case of exposure to 10%.
| Type of fund | Gold limit | Minimum equity invested | Benefit example |
| Large-Cap | 10% | 80% | Inflation hedge |
| Flexi-Cap | 10% | 65% | Dampening volatility |
| Mid-Cap | 10% | 65% | Diversified alpha |
Projection of returns: 12-15 blended and 14-18 pure equity returns, however, Sharpe ratio is better by 20.
Market Impact and Protection.
Inclusion of gold may trigger 5-10billion changes in debt / liquid funds which will push down on bond yields. AMCs are looking at rural penetration through UPI based SIPs. Liquidity risks in gold ETFs (AUM of $15B) are sound, although the S.E.B.I. requires exit loads of 90 days.
Investor protection Stress tests required; gold capped when it lags 3-month returns more than 5%. Meets 2025 mutual fund penetration push-40 crore accounts aim.
Strategic Timing
The depreciation of rupees (83.5/$) and US Fed puts gold bets on hold. After 2024 elections, FII outflows, equities, was hit (20B); this matches domestic SIP surge (25,000 Cr/month). Analysts such as Motilal Oswal are estimating 5 percent AMC acceptance in the first place, and then 30 percent in 2027.
This enables the retail investors which are 80 percent SIP-driven to invest in gold professionally and create long-term wealth without locker inconveniences. The radical move by SEBI makes the industry of 600B contemporary and combines old and new.
