Gold ETF
A Gold ETF (Exchange Traded Fund) is a passively managed open-ended mutual fund scheme that invests in standard gold bullion of 99.5% purity, with each unit representing approximately 1 gram of gold, listed and traded on NSE and BSE just like an equity share, providing investors with electronic gold exposure without physical storage.
Gold ETFs were introduced in India in 2007, with Benchmark Mutual Fund launching the first scheme (later merged into Goldman Sachs and subsequently Nippon India Mutual Fund after acquisitions). The regulatory framework was established by SEBI's mutual fund regulations, which permitted AMCs to launch commodity-backed ETFs with units held in demat form. As of 2026, over a dozen AMCs operated Gold ETF schemes, collectively managing assets of over Rs 30,000 crore, reflecting the sustained investor preference for the convenience of electronic gold over physical forms.
The structure of a Gold ETF involves the AMC purchasing physical gold through approved custodians and depositories. The gold is held in allocated storage vaults with scheduled bank custodians under SEBI-prescribed custody norms. Each unit of the ETF is backed by a defined quantity of physical gold — typically 1 gram, though some older schemes used 0.5 gram units. The NAV of the fund is calculated daily based on the London Bullion Market Association (LBMA) AM Fix price converted to Indian rupees, adjusted for the USD/INR exchange rate, making Gold ETF returns a function of both gold price movements and rupee-dollar dynamics.
Tracking error — the divergence between Gold ETF returns and actual gold price returns — arises from fund expenses (annual management fee typically between 0.5% and 1%), cash drag on subscription float, and timing differences in gold price benchmarking. Investors should compare tracking error across schemes before selection, as differences in custodian charges and operational efficiency lead to measurable differences in long-run performance.
Compared to Sovereign Gold Bonds (SGBs), Gold ETFs offer superior liquidity — they can be bought and sold on the exchange during market hours at live prices, while SGBs have limited secondary market liquidity. However, SGBs provide an additional 2.5% annual interest and offer complete tax exemption on capital gains if held to maturity (8 years), making them more tax-efficient for long-term buy-and-hold investors. Gold ETFs attract capital gains tax — short-term (if held less than 24 months as per 2024 Budget amendments for non-equity schemes) at slab rates, or long-term at 12.5% without indexation.
Gold ETFs are accessible through any demat account and can be transacted through the same broker used for equity trading, making them the most operationally simple way to add gold to a diversified portfolio. For investors without demat accounts, Gold Funds of Funds (FoFs) investing in Gold ETFs are available as regular mutual fund plans transacted via MFCENTRAL or distributor platforms.