MFs eye broader commodity options as interest grows beyond gold and silver

Commodities, long viewed as a tactical play or a store of value in physical form for Indian investors, are fast becoming a core component of diversified investment portfolios. This shift is being driven by the financialisation of commodity assets, with mutual fund industry leaders highlighting the growing integration of gold and silver into mainstream allocations and the emergence of specialised investment funds (SIFs) enabling broader exposure to commodity futures, options, and arbitrage strategies.

At the Global Commodity Conclave, senior executives from leading mutual funds observed that Indian investors have historically preferred to hold commodities such as gold and silver physically. However, Radhika Gupta, Managing Director and CEO of Edelweiss Mutual Fund, noted that gold has now become a "strategic default" in portfolio allocations, with silver also claiming a more regular role. "Even for young and beginner investors today, we typically say that 10% of their portfolio should be gold," Gupta said.

Anand Varadarajan, Managing Director of Tata Mutual Fund, echoed this sentiment, describing gold and silver as crucial portfolio components that offer a hedge against inflation, market volatility, and equity drawdowns. "Indians have always loved commodities. Today, probably we are talking about financialization of that commodity investment," he said.

Growing investor interest in commodities is also evident in the passive fund segment. As of July 2026, total assets under management for passive funds stood at Rs 15.15 lakh crore, with commodity-oriented passive funds making up Rs 2.51 lakh crore, or about 16.6% of the overall passive asset base. The industry saw Rs 47,248.87 crore in net inflows to passive funds in the current financial year to date, including Rs 40,201.71 crore to ETFs and Rs 7,047.18 crore to index funds.

Looking beyond traditional precious metals, mutual fund executives pointed to SIFs as the next major avenue for commodity investments. SIFs, created under regulatory provisions by SEBI, allow funds to deploy more sophisticated strategies using commodity derivatives, including futures, options, and arbitrage. Radhika Gupta called SEBI’s move to open the residual portion of mutual funds to commodities "game-changing" and revealed that Edelweiss plans to launch a new commodity-focused strategy under its SIF platform within the next six months. "You will see something from us that uses commodities very sensibly on the SIF platform," she said.

Varadarajan highlighted the potential for commodity arbitrage to offer higher returns than equity arbitrage within this framework and said SIFs can make these strategies accessible to retail investors, who often lack direct access or expertise in commodity trading.

Vikram Dhawan, Head of Commodities at Nippon India Mutual Fund, emphasized that the rationale for including commodities extends beyond returns to diversification and gaining exposure to hard assets. He also noted India’s reliance on imported commodities and advocated for the development of a comprehensive domestic commodity market, calling for a stronger regulatory infrastructure dedicated to commodities.

Industry participants agreed that while regulatory progress and product innovation are bringing commodities into the forefront of portfolio allocation, challenges remain. Liquidity and position limits are still hurdles, especially for commodities outside gold and silver. Additionally, investor education will be critical as the market moves towards more complex commodity products, with Gupta cautioning against treating all commodities as conventional buy-and-hold investments, especially those like crude oil.

With SIFs expanding the toolkit for commodity funds and passive products gaining traction, mutual fund executives expect commodities to become a more established and strategic element of Indian portfolios, though wider adoption will depend on regulatory evolution, liquidity improvements, and greater investor awareness.