Why Multiple Fund Houses Are Restricting Gold ETF Investments Right Now

When HDFC Mutual Fund announced restrictions on large subscriptions into its Gold ETF and Gold ETF Fund of Fund last week, it looked like one fund house making a cautious call. By June 8, ICICI Prudential, Nippon India, and Kotak Mutual Fund had all done the same thing. 

When several large fund houses move in the same direction within days, the reason is usually bigger than any single fund's portfolio decision. The restrictions appear to be linked to broader macroeconomic considerations, including the impact of gold imports on India's trade balance and currency stability.

What Each Fund House Has Actually Done

Here is exactly what has been announced, and by whom:

A quick note on the ₹25 crore figure: this restriction targets very large investors — institutions and intermediaries who deal directly with the fund house in bulk. It is not a limit on ordinary investors. Across all these schemes, three things remain completely unaffected: buying and selling units on NSE or BSE through your broker or app, ongoing SIPs, and redemptions.

The restriction that matters for investors using the FoF route is the ₹10 lakh per PAN per calendar month cap on lump-sum purchases and switch-ins in certain gold FoF schemes, including HDFC Gold ETF Fund of Fund and UTI Gold ETF FoF; Nippon India has also restricted subscriptions in its gold schemes. If you were planning a large one-time investment through that route, it is now capped. The notices I found specifically restrict lump-sum purchases and switch-ins; any impact on SIPs should be checked in each scheme’s addendum.

Every Reason Behind These Restrictions

This is not one problem. It is several pressures arriving at the same time.

1. The rupee is under serious pressure. The rupee hit a record closing low of ₹96.35 to the dollar in May 2026, falling roughly 7% over the year — the steepest decline among major Asian currencies. Foreign institutional investors (FIIs — large overseas funds that invest in Indian markets) sold a net ₹2.63 lakh crore worth of Indian assets in 2026. When this much money leaves the country, demand for dollars rises, and the rupee weakens further.

2. India's gold import bill hit a record, and gold adds to the rupee problem. India imports nearly all the gold it uses and pays for it in dollars. In FY2025-26, India’s gold import bill reached a record $71.98 billion, while import volumes fell to 721.03 tonnes from 757.09 tonnes in FY2024-25. Here is the part most people miss: India actually imported fewer tonnes of gold in FY26 (721 tonnes) than in FY24 (795 tonnes). The bill rose mainly because of higher gold prices and a weaker rupee, not because Indians bought dramatically more metal. Every dollar spent importing gold is one more dollar leaving the country, adding pressure to a currency that is already falling.

3. Gold ETF demand had been running at a historic high. The first quarter of 2026 was the strongest quarter on record for Indian gold ETF inflows — about ₹316 billion (US$3.45 billion) net, adding roughly 20 tonnes to holdings. India accounted for 32% of all global gold ETF demand in Q1 2026. When inflows are this large, fund houses must source more physical gold to back the new units they create — which means more imports, and more dollar outflow.

4. The government and the RBI were already pulling the same lever. In early May, Prime Minister Modi publicly appealed to Indian families to avoid buying gold for a year. The government then raised the effective import duty on gold and silver from 6% to 15%. Separately, Bloomberg Economics inferred from reserve data that the RBI may have sold about $12 billion of gold in the two weeks ending May 22, but the RBI denied the claim and said its gold holdings remained unchanged at 880.52 tonnes. Seen together, the AMC restrictions are the mutual fund industry's version of the same effort: slow the gold pipeline.

5. Physical supply was already disrupted. India’s gold imports in April 2026 fell to around 15 tonnes, a near 30-year low. The cause was a tax issue: Indian customs began demanding a 3% IGST (Integrated Goods and Services Tax) from banks importing gold, a levy they had previously been exempt from. Banks halted shipments while waiting for clarity, and only resumed in May after agreeing to pay it. Any fund house trying to source physical gold to back new ETF units was walking into a supply chain that had nearly frozen.

These pressures converged in the same window. That is why several fund houses acted within days of each other.

Will This Actually Move the Needle?

Partially, and only on one narrow channel.

When new units of a gold ETF are created, the fund must source and hold physical gold against them. In January 2026, gold ETF demand was estimated to account for roughly 16% of that month's gold imports, so restricting large institutional subscriptions does slow one specific part of the import pipeline.

But the context matters. These caps block the ₹25 crore-plus institutional route. They do not touch the millions of retail SIPs running every month across roughly 1.2 crore gold ETF folios. India also imports several hundred tonnes of gold a year, primarily for jewellery. ETF-driven imports are only a fraction of the total.

In other words, these restrictions are one part of a coordinated set of measures, alongside the duty hike, the PM's appeal, and the RBI's intervention, all aimed at easing pressure on the rupee. No single step solves a $72 billion import bill on its own. Together, they are meant to buy time while conditions settle.

The One Risk Worth Watching

When large investors cannot create new ETF units directly, the supply of units in the market gets capped. If demand on the exchange continues while new supply is frozen, an ETF's price can drift above its NAV (Net Asset Value, the actual per-unit value of the gold the fund holds). This is called trading at a premium, and it means you would be paying more than the gold inside is actually worth.

Before buying any gold ETF on the exchange right now, check the live price against the day's NAV. If there's a meaningful gap, it's worth waiting rather than buying at a premium.

Things to Keep in Mind

• At least four AMCs have now confirmed restrictions. More fund houses are reviewing their options and may issue similar addenda if corporate and institutional inflows don't cool off.
• Every fund house has described the move as temporary. None has given a fixed end date.
• SIPs are unaffected across all schemes.
• Silver ETFs also depend on physical bullion supply, so they can face similar supply-side pressures, but any current restriction should be checked scheme by scheme.

The Bottom Line

The previous blog explained how gold ETFs work under the hood, that every unit needs real physical gold behind it. This one explains what put that supply chain under stress.

This is not a sign that gold ETFs are unsafe. Existing holdings are intact, NAVs are tracking gold prices normally, and redemptions remain open. What's under strain is the broader system around sourcing gold, a rupee near ₹96, a record $72 billion import bill, a sharp drop in April imports, and a government trying to slow the dollar drain from every direction.

For most investors, nothing needs to change. Keep your SIPs running, and check the premium before making a large lump-sum purchase on the exchange. And if you hold a multi-asset or hybrid fund that allocates part of its money to gold ETFs, it's worth watching its factsheet over the coming months, as fund managers may gradually reduce the gold allocation if sourcing new units stays difficult.