India’s biggest mutual fund houses are putting the brakes on fresh money flowing into .
HDFC Mutual Fund, ICICI Prudential Mutual Fund, Nippon India Mutual Fund and Kotak Mutual Fund have imposed restrictions on large subscriptions into their gold schemes over the past week, even as investor demand for the yellow metal remains strong.
HDFC Mutual Fund has barred direct subscriptions of ₹25 crore or more into HDFC Gold ETF and capped lump-sum investments in HDFC Gold ETF Fund of Fund at ₹10 lakh per PAN per month. ICICI Prudential Mutual Fund has imposed a similar ₹25 crore limit on direct subscriptions into ICICI Prudential Gold ETF.
Nippon India Mutual Fund has restricted subscriptions into Nippon India ETF Gold BeES and Nippon India Gold Savings Fund, while Kotak Mutual Fund has limited large lump-sum investments into Kotak Gold ETF from 8 June.
The move comes at a time when gold ETFs are attracting record inflows, but fund houses are finding it increasingly expensive to source the physical gold needed to back new units. A key reason is the rupee’s continued weakness, which has raised the cost of importing bullion into India.
Why does the rupee matter for gold ETFs?
Unlike equity funds, gold ETFs cannot deploy inflows into financial assets. Every unit created by a gold ETF must be backed by physical gold.
When fresh money enters a gold ETF, the fund house is required to acquire additional bullion to create new units. Since India imports nearly all the gold it consumes, these purchases ultimately require US dollars.
This has become a challenge as the rupee faces persistent pressure.
The currency touched a record low of ₹96.35 against the US dollar in May 2026, making it one of Asia’s weakest-performing major currencies this year. At the same time, have withdrawn roughly ₹2.63 lakh crore from Indian markets in 2026, adding pressure on external balances.
Meanwhile, India’s gold import bill has expanded sharply. Gold imports rose to nearly $72 billion in FY26, up about 58% compared to two years ago. Gold has now become India’s second-largest import category after crude oil.
In such an environment, rising institutional demand for imported gold increases demand for dollars, adding another layer of pressure on the currency.
Record gold ETF demand meets supply constraints
The timing of the restrictions is not coincidental.
Gold ETFs witnessed their strongest quarter on record during the March 2026 quarter, attracting around ₹31,600 crore of net inflows. Demand has been driven by geopolitical uncertainty, currency weakness and strong gains in gold prices.
Under normal circumstances, fund houses would simply create additional units and purchase more gold. However, the economics of gold imports changed significantly in recent months.
The government raised the effective import duty on gold from 6% to 15%, reversing much of the duty relief announced in July 2024. At the same time, uncertainty surrounding the indirect tax treatment of bullion imports disrupted traditional supply channels, leading some importers to slow purchases.
The result is a mismatch between demand and supply.
Accepting large inflows under such conditions could force fund houses to acquire gold at elevated costs or temporarily hold cash until bullion becomes available. Either scenario can dilute tracking efficiency and affect existing investors.
Restricting large subscriptions helps fund houses manage these risks while maintaining the integrity of the ETF structure.
What should investors do now?
The restrictions do not affect existing investors. Redemptions remain open and continue as usual.
Importantly, the restrictions should not be viewed as a negative call on gold itself. They are largely a response to temporary challenges arising from a weak rupee, higher import costs and disruptions in bullion supply. Once currency pressures ease and import channels normalise, the restrictions are likely to be reviewed.