An exchange-traded fund that tracks the price of physical gold, allowing investors to gain gold exposure without storing physical bullion. Each unit represents approximately 1 gram of gold.
A Gold ETF is an ETF that tracks the domestic price of gold, with each unit typically representing approximately 1 gram of 99.5% pure gold. It trades on the NSE and BSE like a regular stock, providing investors with a convenient, cost-effective way to invest in gold without the hassles of physical storage, purity concerns, and making charges.
In India, major Gold ETF providers include Nippon India Gold ETF, HDFC Gold ETF, SBI Gold ETF, ICICI Prudential Gold ETF, and Kotak Gold ETF. The combined AUM of Gold ETFs exceeds Rs 35,000 crore (2024). The fund house buys and stores physical gold with a custodian, and the ETF price tracks the spot gold price in India (which reflects international gold prices adjusted for INR exchange rate and import duties).
Cost comparison: Physical gold involves making charges (8-25%), storage/locker costs, and purity risk. Gold ETFs have an Expense Ratio of 0.5-1.0% annually and brokerage on transactions, but no storage costs or purity concerns. Sovereign Gold Bonds (SGBs) offer 2.5% annual interest plus gold price appreciation and are tax-free on maturity — making them the most tax-efficient gold option, but they have an 8-year lock-in (with exit option after year 5).
Gold as an asset class has delivered approximately 10-11% CAGR in INR terms over the past 20 years, benefiting from both gold price appreciation and rupee depreciation against the dollar. Gold performs best during periods of high inflation, geopolitical uncertainty, and equity market stress, making it an effective portfolio diversifier. A 10-15% allocation to gold in an Indian portfolio has historically improved risk-adjusted returns — reducing Drawdown during equity crashes while contributing positive returns.
Tax treatment: Gold ETF gains held under 12 months are Short-Term Capital Gains taxed at the investor's income tax slab rate. Gains on units held for 12 months or more are Long-Term Capital Gains taxed at 12.5% (post Budget 2024). This is less favourable than SGBs (tax-free on maturity) but more flexible since Gold ETFs can be sold anytime on the exchange with T+1 settlement.
India Context
SGBs are more tax-efficient (tax-free on maturity + 2.5% interest). Gold ETF AUM exceeds Rs 35,000 crore. One unit equals approximately 1 gram. Import duty changes impact gold prices significantly.