Fund houses suspend fresh gold fund-of-fund investments amid rupee volatility

Fund houses across India have imposed a temporary freeze on fresh investments in gold funds-of-funds (FoFs) starting Friday, as the Indian rupee faces ongoing depreciation pressures. The moratorium covers new lump-sum contributions and systematic investment plans (SIPs), along with switch and systematic transfer plan (STP) registrations into these schemes.

The move reflects heightened volatility in currency markets and its potential impact on gold-denominated investments. Gold FoFs, which invest primarily in international gold exchange-traded funds, carry inherent currency risk as fluctuations in the rupee-dollar exchange rate directly affect returns for domestic investors.

However, the restrictions appear calibrated to manage inflows rather than trigger wholesale withdrawals. Existing investments in gold FoFs remain intact, and fund houses have maintained normal operations for gold ETFs traded on domestic exchanges, which do not carry the same currency exposure as their international counterparts.

The development underscores growing concerns among asset managers about managing investor exposure during periods of rupee weakness. Industry participants attribute the cautious stance to the need for prudent risk management when foreign exchange volatility threatens to overshadow the inherent value proposition of gold as an inflation hedge and portfolio diversifier.