5 days ago
Equity Funds Gain Asset Flexibility, But Experts Urge Caution
SEBI has given some equity mutual funds more choices for part of their portfolios.
These funds can use that part to invest in gold, silver or infrastructure trusts.
A fund that must keep 65% in equities could have up to 35% for these other investments.
Fund managers may use this flexibility when stock markets look expensive or uncertain.
This could help investors diversify through one fund instead of managing several investments themselves.
However, funds do not have to use the full allowance.
Using gold, silver or InvITs does not promise better returns or less risk.
Investors should check what a fund actually owns and how it is managed.
They should also consider costs and the fund’s long-term record.
SEBI’s revised framework allows eligible equity funds to invest residual allocations in gold ETFs, silver ETFs and InvITs.
A fund with a 65% minimum equity requirement could have up to 35% available for permitted non-equity investments.
The flexibility may let fund managers adjust portfolios and diversify without investors moving money between separate products.
Experts caution that the allocation is optional and does not guarantee higher returns or lower risk.
Investors should review scheme documents, fact sheets, costs, strategy, consistency and long-term performance before investing.
- Who
- SEBI, eligible equity mutual funds, fund managers and investors; experts Bhushan Wani and Pawan Agarwal also commented.
- What
- SEBI revised the mutual fund framework to allow eligible equity schemes to invest residual allocations in gold ETFs, silver ETFs and InvITs.
- Where
- The framework applies to mutual funds in India.
- When
- The change was introduced in early 2026.
- Why
- To give fund managers greater flexibility to diversify portfolios and adjust asset allocations while meeting minimum equity requirements.
Flexibility Can Help
Flexibility Requires Caution
Portfolio diversification
Flexibility Can Help
Fund managers can allocate to gold, silver and infrastructure assets within the scheme, potentially reducing reliance on equities and avoiding the need for investors to shift money themselves.
Flexibility Requires Caution
Investors should not select a fund merely because it has this ability; actual exposure depends on the fund’s strategy and decisions.
Managing market uncertainty
Flexibility Can Help
Bhushan Wani said the framework gives managers more productive alternatives to cash or low-yielding liquid debt when valuations are stretched or uncertainty rises.
Flexibility Requires Caution
Wani also noted that returns may diverge from pure equity benchmarks during strong equity rallies, while Pawan Agarwal described the 35% allowance as a flexibility rather than a feature.
Risk and returns
Flexibility Can Help
Tactical allocations could help smooth drawdowns and provide diversification through one investment vehicle.
Flexibility Requires Caution
The flexibility is not a guarantee of higher returns or lower risk and could create unintended concentration for investors who already hold other asset classes.
Key facts
- Regulator
- Securities and Exchange Board of India (SEBI)
- Permitted assets
- Gold ETFs, silver ETFs and Infrastructure Investment Trusts (InvITs)
- Maximum example
- A scheme with a 65% minimum equity requirement could have up to 35% available for permitted investments outside equities.
- Large-cap example
- A scheme required to maintain 80% exposure to its core equity universe would have a smaller residual allocation.
- Investor benefit
- Potential diversification and tactical asset allocation through a single mutual fund.
- Key limitation
- The flexibility is optional and does not guarantee higher returns or lower risk.
- What to review
- Scheme documents, monthly fact sheets, investment process, consistency, costs and long-term performance.
Quotes
Pawan Agarwal
Founder at GoodMoneyMan Associates LLP
“Historically, when equity valuations stretched or market uncertainty loomed, fund managers had limited choices for their residual non-equity cash: they either sat on low-yielding liquid debt or cash equivalents. Under the updated framework, fund houses can deploy up to 35% into precious metals and yield-bearing infrastructure assets directly within an equity mandate. This allows active risk mitigation against equity drawdowns while keeping capital productive.”
livemint.com
“While this flexibility empowers fund managers to smooth the drawdown curve, equity fund returns may slightly diverge from pure benchmark indices during runaway equity bull runs. Investors should evaluate whether their fund manager actively uses this flexibility or maintains a pure equity posture, ensuring alignment with their personal risk appetite and horizon.”
livemint.com
Sources
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