India expands rules for $385 billion stock funds to add gold

India’s market regulator has allowed the country’s $385 billion actively managed equity funds to park more of their money in gold and silver, giving them greater flexibility at a time when global demand for hard assets is rising.

Under revised rules by the Securities and Exchange Board of India, stock funds can invest the remainder of their portfolios — up to 35% of their assets — in gold and silver instruments, as well as in units of infrastructure investment trusts.

By widening the list of permitted assets, the regulator has given equity funds a broader toolkit that already includes money market and other liquid securities. The change could also create a new source of demand for gold and silver, which have attracted robust investor interest amid a blistering rally.

In January, local investors put more money into gold exchange-traded funds than into stock funds, a rare reversal that underscores the growing appeal of bullion amid market uncertainty.

SEBI also approved the creation of a new category of life cycle funds or target-date funds. These plans will have pre-determined maturities from five to 30 years and are designed for goal-based investing, such as retirement planning.

Asset management firms will be allowed to offer up to six active life cycle funds at a time, potentially positioning the industry to compete with the government’s National Pension System that oversees about $177 billion.

Separately, the regulator asked asset managers to use polled spot prices published by recognized stock exchanges for valuing the physical gold and silver held under mutual fund plans. Current pricing mechanism is based on AM fixing prices of London Bullion Market Association. The revised practice will reflect domestic market conditions and ensure uniformity in the valuation practices, SEBI said in a circular on Thursday.

(By Ashutosh Joshi)