The landscape of gold exchange-traded funds (ETFs) is changing as the Securities and Exchange Board of India (SEBI) permits these funds to partially invest in gold futures. HDFC Gold ETF is the first to adopt this approach, allowing it to maintain liquidity and respond to market fluctuations without solely relying on physical gold. Under the new rules, gold ETFs must still allocate 95% of their assets to gold or related instruments, but now futures contracts can be counted towards this allocation. While this could help manage sudden inflows or delays in purchasing physical gold, it introduces potential costs and counterparty risks associated with futures trading.

Critics, including financial analysts, express concern that this shift may undermine the original purpose of gold ETFs, which were designed to provide direct exposure to physical gold. They argue that introducing futures contracts changes the fundamental characteristics of these funds. However, proponents maintain that the core strategy of investing in physical gold remains intact, with futures serving as a backup mechanism rather than a replacement. Investors are advised to closely monitor their ETF holdings as this evolution unfolds.