Should Indian Mutual Funds Add Crypto?

What if Indian mutual funds added a little crypto?

Introduction

As cryptocurrency gains global legitimacy through spot ETFs and regulatory clarity in key markets like the U.S., a key question emerges for India: What if Indian mutual fund houses began allocating a portion of their portfolios to crypto assets alongside traditional investments like equities, bonds, and gold? This article explores the potential implications, benefits, risks, and portfolio structuring possibilities if mutual funds were to integrate crypto.

Market Expansion and Legitimization

If Indian mutual fund houses start offering schemes with crypto allocations:

• Legitimacy Boost: Crypto would be seen not just as a speculative tool but as a serious asset class.

• Mainstream Adoption: Conservative retail investors may begin SIPs into these funds, drastically increasing crypto market participation.

• Institutional Capital Inflows: With just 1–2% allocation across high-AUM funds, this could inject billions into Bitcoin, Ethereum, and leading altcoins.

Investor Behavior Transformation

Professional management would mitigate retail investor fears about security, custody, and price volatility.

Regulatory and Tax Implications

Current Scenario:

• SEBI Restrictions: Funds are not allowed direct crypto investments.

• Crypto Taxation: Virtual Digital Assets (VDAs) are taxed at a flat 30% with no loss offset.

Required Changes:

Potential Portfolio Structure

Example: Aggressive Hybrid Fund with Crypto Exposure

This model offers a balance between stability and growth, with crypto acting as a return enhancer rather than core exposure.

Fund Categories Likely to Pioneer

Benefits

• Risk-Adjusted Returns: Crypto’s uncorrelated behavior may improve the Sharpe Ratio.

• Diversification: Access to blockchain, DeFi, and tokenized assets.

• Global Participation: Indian funds tapping into a $2T+ global market.

Risks & Mitigations

Final Thoughts

The integration of crypto into mutual fund schemes could reshape India’s investing ecosystem. While regulatory hurdles and volatility concerns are real, the long-term benefits — legitimacy, inclusion, and innovation — present a compelling case. If and when SEBI opens the door, crypto allocation could become a defining feature of next-generation investing in India.

Author Note: This analysis is speculative and based on current regulatory landscapes and potential market behaviors. Investors should await SEBI guidance and consult with advisors before acting.