Gold And Silver Inside Equity Mutual Funds: What The 2026 Rule Change Means For You

Last Reviewed and Updated: 17 Aug 2026

On February 26, 2026, the Securities and Exchange Board of India issued a new circular titled Categorization and Rationalization of Mutual Fund Schemes, replacing the framework that had governed equity scheme categories since June 2024. Two changes in it matter most for anyone holding, or considering, a mainstream equity fund.

First, the portion of an equity fund that sits outside its core equity mandate, historically limited almost entirely to debt and money market instruments, can now flow into gold funds, silver funds, and Infrastructure Investment Trusts as well.

A large cap or flexi cap fund manager is no longer confined to holding cash, bonds, or treasury bills with the residual sleeve of the portfolio. Gold and silver are now a permitted, direct holding inside what most investors think of as a pure stock fund.

Second, SEBI simultaneously raised the mandatory minimum equity allocation from 65% to 80% for four equity categories: Value, Contra, Focused, and Dividend Yield funds.

Large Cap, Sectoral, Thematic, and ELSS Tax Saver funds were already required to hold a minimum of 80% equity before this circular, so nothing changed there beyond a new portfolio overlap discipline for Sectoral and Thematic schemes specifically.

Flexi Cap, Mid Cap, Small Cap, Multi Cap, and Large and Mid Cap funds keep their existing 65% floor. Which category sits at 65% and which sits at 80% turns out to matter a great deal once you look at how fund gains are actually taxed, covered further down.

A separate but related circular, issued the same week, changed how mutual fund schemes value any physical gold and silver they already hold. That change is addressed in its own section below.

How Much Room A Fund Now Has For Gold And Silver

Fund Category	Minimum Equity Now	What Changed In February 2026
Value Fund	80%	Raised from 65%
Contra Fund	80%	Raised from 65%
Focused Fund	80%	Raised from 65%
Dividend Yield Fund	80%	Raised from 65%
Large Cap Fund	80%	Unchanged, already 80%
Sectoral Fund	80%	Unchanged, new overlap cap added
Thematic Fund	80%	Unchanged, new overlap cap added
ELSS Tax Saver Fund	80%	Unchanged
Flexi Cap Fund	65%	Unchanged
Mid Cap Fund	65%	Unchanged
Small Cap Fund	65%	Unchanged
Multi Cap Fund	75%, split 25% each across large, mid, and small cap	Unchanged
Large And Mid Cap Fund	70%, split 35% each across large and mid cap	Unchanged

Room available for gold, silver, Infrastructure Investment Trusts, and debt combined equals 100% minus the minimum equity figure shown. None of this is a requirement. SEBI has created room, not a mandate, and whether a specific scheme uses any of it shows up in that scheme's own information document, not in its category name.

In practice, that means a Value or Focused fund now has up to 20% of its portfolio available for gold, silver, InvITs, and debt combined, while a Flexi Cap or Mid Cap fund has up to 35% available for the same purposes. The 35% figure widely quoted in coverage of this rule applies only to the categories that kept their 65% equity floor.

Where Else Gold And Silver Now Fit

Fund Type	Gold And Silver Allowance	Equity Related Requirement
Life Cycle Fund (new category)	Up to 10% in gold and silver ETFs at any point along the glide path	Equity share of 65% to 95% early in the term, declining toward 5% to 20% near maturity
Balanced or Aggressive Hybrid Fund	Residual allocation can flow into gold and silver ETFs, InvITs, REITs, and commodity derivatives	Governed by each hybrid category's existing equity band; unchanged by this circular
Equity Savings Fund	No new gold or silver allowance introduced	New minimum 15% net unhedged equity floor; total equity and arbitrage exposure must stay within 65% to 90% to keep equity tax treatment

Life Cycle Funds are the new category SEBI created to replace the retirement and children's fund labels it discontinued in the same circular. Existing schemes in the discontinued category stopped taking fresh subscriptions immediately and are being merged into schemes with a similar asset mix.

A Life Cycle Fund instead runs a declining equity glide path over a five to thirty year tenure, and its ability to hold up to 10% in gold and silver ETFs throughout that period is meant to preserve some inflation protection even as the portfolio shifts toward debt near the target date.

Why SEBI Is Doing This Now

Two forces are visible in the timing. Retail appetite for precious metals has been strong on its own: Gold ETFs alone pulled in roughly Rs 24,039 crore in January 2026, more than double the previous month, while Silver ETFs added a net Rs 9,463 crore in the same period. SEBI's rule lets a fund manager meet some of that demand from inside an existing equity scheme rather than requiring the investor to make a second, separate purchase.

Investors were already buying record amounts of gold and silver on their own. What changed is that a fund manager can now meet part of that demand from inside a scheme investors already hold, instead of asking for a second purchase.

That appetite has not been frictionless to satisfy directly. Six major fund houses capped large direct gold ETF subscriptions in June 2026 after a domestic supply squeeze tied to a new tax treatment on bank gold imports and a doubled import duty, a constraint unrelated to any fund house view on gold as an investment.

Embedding a gold and silver sleeve inside an equity fund does not bypass that underlying supply constraint, since the scheme still has to source the same physical metal or the same ETF units. What it does is give fund managers an additional channel through which to offer diversification without requiring a second product from the investor.

A New Way To Price The Metal Itself

Alongside the categorization change, SEBI issued a companion circular, Valuation of Physical Gold and Silver Held by Mutual Fund Schemes, also dated February 26, 2026. Effective April 1, 2026, schemes must value any physical gold and silver they hold using polled spot prices published by recognized domestic exchanges that settle physically delivered gold and silver derivatives contracts, principally the Multi Commodity Exchange.

This replaces the earlier method, which started from the London Bullion Market Association's morning fixing price in US dollars and layered on currency conversion, customs duty, transportation cost, and a notional premium or discount, a process that left room for each fund house to apply slightly different adjustments.

AMFI, in consultation with SEBI, is expected to prescribe a uniform implementation policy so that NAV differences across schemes reflect genuine differences in holdings and cost rather than differences in valuation methodology. For most investors this mostly affects how comparable two dedicated gold or silver schemes are to each other, rather than anything about a diversified equity fund's own day to day NAV.

The Tax Question Hiding Inside This Rule

Equity oriented status for tax purposes and SEBI's category minimum are governed by different rulebooks, but they lean on the same number. A fund needs to hold at least 65% in equity and equity related instruments to qualify as equity oriented, which brings the favorable short term rate of 20% within 12 months and long term tax of 12.5% above Rs 1.25 lakh a year beyond that. Fall meaningfully short of 65%, and a fund's gains stop qualifying for that treatment.

For the categories SEBI moved to an 80% floor, Value, Contra, Focused, and Dividend Yield funds, along with Large Cap, Sectoral, Thematic, and ELSS schemes that were already there, this is not a live risk.

Even the full 20% swing into gold, silver, InvITs, and debt still leaves the fund comfortably above the 65% tax threshold. For the categories that kept their 65% floor, Flexi Cap, Mid Cap, Small Cap, Multi Cap, and Large and Mid Cap funds, the regulatory minimum and the tax threshold are now the same number.

A fund manager who uses the full available headroom for gold, silver, and debt is running the portfolio exactly at the line that separates equity taxation from something considerably less favorable, with no buffer left for a market move that quietly pushes the equity share below 65% before the next rebalancing.

Wrapper	Long Term Holding Period	Long Term Tax Rate	Annual Exemption Bucket
Equity fund at or above its 65% equity threshold, holding gold or silver within its permitted room	12 months	12.5% above Rs 1.25 lakh a year	Shared with all other equity fund gains in the same year
Gold or Silver ETF held directly, listed units	12 months	12.5%, no annual exemption	Not shared with equity fund gains
Gold or Silver fund of funds, unlisted units	24 months	12.5%, no annual exemption	Not shared with equity fund gains

Rates reflect the Income Tax Act, 2025, applicable from April 1, 2026. Always confirm a specific scheme's current equity share, since gains inside a fund that falls below its equity oriented threshold are not taxed on the equity schedule shown here.

There is a genuinely favorable wrinkle for investors who stay above that 65% line. Gains inside an equity oriented fund are taxed as a single number when units are sold, regardless of which underlying asset actually produced the return.

A fund holding, say, 30% in gold and silver within its permitted room, while comfortably above 65% equity overall, passes on equity style taxation, complete with the annual Rs 1.25 lakh exemption bucket, to gains that are economically attributable to gold and silver price movements.

Held directly instead, gold and silver ETF units follow their own separate rules, a 12 month holding period for listed units and a 24 month period for an unlisted fund of funds, both taxed at 12.5% once long term, but never sharing the equity exemption bucket and never blended together with stock gains in the same calculation.

For a fund sitting exactly at the 65% equity floor, gold and silver are no longer just a diversification choice. They are also a tax decision the fund manager is now making on the investor's behalf.

What This Means For Your Existing Holdings

Nothing changes automatically for money already invested. A rule permitting gold and silver inside a fund category is not an instruction for every fund house to add it, and adoption through the middle of 2026 has been selective rather than universal.

The only reliable way to know whether a specific large cap, flexi cap, or hybrid fund you hold actually carries any gold or silver exposure, and how much room it is using, is to check that scheme's latest factsheet and scheme information document rather than assume it from the category label.

There is also a quieter portfolio construction point worth checking. Investors who deliberately hold a standalone gold ETF or Sovereign Gold Bond alongside an equity fund for diversification should check whether that equity fund has separately started adding its own gold or silver sleeve. If it has, actual precious metals exposure across the full portfolio is higher than a simple sum of the standalone holdings would suggest, an easy thing to miss since the equity fund's factsheet still describes it, correctly, as a large cap or flexi cap scheme.

Status as of July 2026. SEBI's circular is dated February 26, 2026, and most provisions took effect immediately, though individual fund houses are still updating scheme documents and deciding how much of the new room to actually use through the middle of 2026. Figures in this article reflect the rule as published; always check a specific scheme's latest factsheet for what it is actually holding today.

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