Over the last five to six months, inflows into gold and silver funds have been significant
Combined assets of India's gold and silver mutual funds have crossed Rs 1 lakh crore, reflecting a surge in investor appetite for safe-haven and supply-constrained commodities at a time of heightened global volatility.
The industrial demand for silver, persistent central bank buying and expectations of a widening demand-supply gap have together fuelled interest in precious metals, the Association of Mutual Funds in India (AMFI) Chief Executive Officer Venkat Nageswar Chalasani told Moneycontrol in an interview.
Edited excerpts:
Q. What is driving investor interest in gold and silver commodities, and how are they shaping portfolio diversification?
A: A major trend we are seeing today is diversification within investor portfolios, particularly in commodities. Investors are increasingly looking at gold and silver because both are attractive for different reasons. Gold, in particular, has seen very strong interest as central banks across the world continue to buy gold. In times of extreme market volatility or global uncertainty, investors naturally gravitate toward safe-haven assets. Traditionally, the two global safe havens have been US Treasuries and gold. While Treasuries remain attractive, the shift toward gold has been much stronger, with central bank accumulation being one of the key factors behind rising gold prices.
Silver is also witnessing increased demand, but for slightly different reasons. Industrial usage is driving this trend, with many sectors becoming increasingly dependent on silver over the next one to two years. Recent research and market reports indicate that industrial demand for silver is expected to grow faster than the supply that will enter the market, creating an anticipated demand-supply gap. This expectation is attracting investors to silver as well.
Over the last 5-6 months, inflows into gold and silver funds have been significant, and the combined AUM for the category has now crossed Rs 1 lakh crore. While it is important to remember that commodities move in cycles and cannot rise continuously, the recent surge clearly reflects a strong preference among investors for diversification and for assets that provide some stability during uncertain times.
Q. Do you believe PSUs are adequately represented in mutual fund portfolios, or is there a perception that fund houses under-allocate to them?
A: In the mutual fund space, there are already schemes that invest in public sector undertakings. Investments in PSUs are happening; most AMCs already run dedicated PSU funds, and these portfolios do invest meaningfully in the public sector universe.
Second, when it comes to large-cap, mid-cap or small-cap schemes, fund managers look at the full investible universe. If it is an index fund, they are required to maintain weights exactly as per the index, and naturally, that includes PSU stocks as well.
What investors normally evaluate -- and rightly so -- is the return they seek versus the risk they are willing to take. The investor's own risk appetite drives the decision, not whether the company is a PSU or not.
Q. The mutual fund industry's AUM touched an all-time high of Rs 79.86 lakh crore in October. Is this growth sustainable?
A: Yes. One of the key reasons for sustainability is the strength of systematic investment plans (SIPs), which currently account for around Rs 29,600 crore per month. SIPs represent disciplined, long-term money from retail investors, providing a strong foundation for the industry.
Another factor supporting sustainability is trust and transparency. Mutual fund products today are easy to understand and easy to invest in. Investors know their NAV every day, can track concentration risk, see stress-test results, and compare scheme performance with peers. These disclosures give investors confidence that their money is being managed transparently. Liquidity is also important; investors know that redemption requests are honoured promptly. These factors collectively underpin the continued growth and resilience of the industry.
Q. How do you see India's mutual fund AUM and the AUM-to-GDP ratio evolving as the country works toward its Viksit Bharat 2047 vision?
A: Our focus is on the AUM-to-GDP ratio rather than absolute AUM. Currently, it stands at around 20 percent. In comparison, developed markets have ratios well above 100 percent, at around 135 percent in the US and 130 percent in Australia. The global average is approximately 65 percent. Our near-term goal is to raise India's ratio to at least 30 percent over the next five years. By 2047, as India progresses toward becoming a Viksit Bharat, we believe the country could reach the global average or potentially approach 100 percent.
Q. Why are SIPs considered central to the industry's stability?
A: SIPs are critical because they allow every type of investor - salaried individuals, business owners, first-time investors, and small savers - to invest in a disciplined manner aligned with long-term financial goals. Unlike lump-sum investments, which can fluctuate with market volatility, SIPs provide steady, consistent inflows. While some months may purchase fewer units and others more, the overall discipline remains intact, lending stability to the mutual fund ecosystem.
Q. What is the scope for deeper mutual fund penetration in smaller towns and villages?
A: While we take pride in overall AUM growth and increased investor numbers, penetration beyond the top 30 cities remains relatively low. Even within metros, there is room to grow. The bigger opportunity lies in B-30 and smaller towns, which currently contribute nearly 55 percent of incremental SIPs. Greater investor education and outreach are needed to further expand mutual fund adoption in these regions.
Q. Hybrid funds seem to be attracting increasing investor interest. What is driving this trend, and who are these funds suitable for?
A: Investors have different risk appetites. Aggressive investors tend to prefer equity, mid-cap, or small-cap funds, while highly conservative investors lean toward debt or government securities. Moderate-risk investors benefit from hybrid funds, which offer a balanced mix of equity and debt. Aggressive hybrid funds with around 65 percent equity are also tax-efficient and provide diversification. Interest in hybrids generally rises when equity markets are volatile and interest rates are stable or expected to soften. For highly risk-averse investors, pure debt funds remain more suitable. Ultimately, the choice depends on risk appetite, financial goals, tax planning, and age.
Q. Why do Equity Linked Savings Scheme (ELSS) mutual fund flows typically show net outflows for most of the year, and when do positive inflows usually occur?
A: ELSS flows tend to show predictable net outflows for most months, as redemptions often exceed contributions. The only period when positive net inflows are generally observed is toward the end of the financial year, in February and March, when investors make contributions for tax planning purposes.