Your gold ETF may no longer be just gold. Here's why

Summary: Your Gold ETF may no longer hold only gold bars. SEBI has opened the door for these funds to use gold futures contracts, a financial instrument, not physical metal. We look at which funds have made the change and what this means for you.

If you invest in a gold ETF, something has changed, and it is worth understanding.

Gold ETFs were built on a straightforward promise: you invest, the fund buys gold, and your returns track the metal's price. Simple, clean, no moving parts. That simplicity is now getting a footnote.

SEBI's Master Circular of June 2024 permits gold ETFs to invest in gold futures contracts and count them toward the mandatory 95 per cent gold allocation every such fund must maintain. HDFC Mutual Fund has become the first to act on this, with the changes taking effect from April 22, 2026.

What are gold futures, and why do they matter?

Physical gold is exactly what it sounds like: the fund buys gold bars, stores them and your investment tracks the price of that metal.

Gold futures are different. A gold futures contract is an agreement to buy or sell gold at a fixed price on a future date. The fund does not hold gold in this case. It holds a financial contract that tracks gold's price. That is a meaningful distinction, even if the end result often looks the same on a returns chart.

The case for futures and the trade-offs

Holding physical gold is not without its costs. Storage, insurance and operational logistics all add friction. Futures sidestep these hassles and give a fund more flexibility in tracking gold prices efficiently.

But they come with their own trade-offs.

Futures contracts expire periodically, and the fund must keep rolling them over. Each rollover has a cost. In certain market conditions, these costs can quietly widen the gap between what gold actually returned and what your ETF delivered. The gap is rarely large, but it is real, and it simply does not exist when a fund holds physical gold.

Settlement is the other consideration. At expiry, futures can be settled in cash or through physical delivery. Managing this requires active oversight that a fund holding only gold bars does not need.

Should you be worried?

Not yet. 

Here is why. The 95 per cent gold allocation requirement remains firmly in place. HDFC has clarified that futures will only be used in exceptional circumstances, such as when physical gold is temporarily difficult to procure, and that the fund will revert to physical gold once conditions normalise. As of February 28, 2026, 98.65 per cent of HDFC Gold ETF's assets were in physical gold.

There is also a number that has caused confusion: the rules cap combined exposure to futures and related instruments at 50 per cent of a fund's net assets. This has been misread as funds being allowed to move half their assets out of physical gold. That is not what it means. The 50 per cent is a ceiling within the 95 per cent gold allocation, not a substitute for it. Physical gold remains the default.

The bigger picture

SEBI's change does not break the promise gold ETFs were built on. But it adds a condition: funds can now, under specific circumstances, hold a financial contract instead of gold bars and still count it as gold exposure.

For most investors, the day-to-day impact will likely be minimal. But gold ETFs are no longer the single-ingredient product they once were. That is worth knowing before you decide to stay put, make a switch or simply pay closer attention to what your fund is actually holding.

Also read: Gold Mutual Funds vs Gold ETFs: Which for Indian Investors?