What Is a Gold ETF? How It Works, Best Funds in India & Tax Rules
Gold ETFs let you invest in 99.5% pure gold through a demat account — no storage, no making charges, no theft risk. Here's everything you need to know before buying.
A Gold ETF is an exchange-traded fund that holds physical gold (99.5% pure) as its underlying asset. Units trade on NSE or BSE through a demat account, just like stocks, and prices track domestic gold rates in real time. Most Gold ETF units are currently priced at ₹120–135 per unit (as of June 2026)—making them far more accessible than buying physical gold. You never receive physical gold; you hold units in your demat account.
Gold has always been central to how Indian households save and invest. But physical gold comes with friction, making charges, storage risk, liquidity limitations, and no way to invest small amounts consistently. Gold ETFs solve all of that. They give you clean, liquid, exchange-traded exposure to gold without any of the physical asset problems.
What is a Gold ETF?
A Gold ETF is a mutual fund scheme that invests at least 95% of its assets in physical gold (SEBI requires 995 fineness or 99.5% purity, conforming to LBMA Good Delivery Standards). The fund holds the actual gold in a vault through a bank custodian and issues units that trade on the NSE or BSE like stocks.
Each unit is priced to track a fixed quantity of gold (typically 0.01 grams or similar, depending on the fund's structure). When gold prices rise, unit prices rise proportionally, and vice versa.
How do Gold ETFs work?
When you buy a Gold ETF unit through your demat account:
- The AMC uses your money to purchase physical gold from approved sources.
- That gold is held in a custodian vault, usually a bank like HDFC Bank, ICICI Bank, or SBI.
- You receive units in your demat account that represent your proportional claim on that gold.
- You can sell these units on the exchange any time during market hours (9:15 AM to 3:30 PM IST) at the live market price.
The fund's NAV closely tracks the domestic price of gold (which itself tracks the international spot price adjusted for import duty, the USD/INR exchange rate, and other costs).
Top Gold ETFs in India
| Fund Name | AMC | Expense Ratio | AUM (approx., Jun 2026) |
|---|---|---|---|
| Nippon India Gold ETF | Nippon India MF | ~0.81% | ~ ₹55,540 Cr |
| ICICI Pru Gold ETF | ICICI Prudential MF | ~0.42% | ~₹26,381 Cr |
| SBI Gold ETF | SBI MF | ~0.65% | ~₹24,550 Cr |
| HDFC Gold ETF | HDFC MF | ~0.59% | ~₹23,239 Cr |
| Kotak Gold ETF | Kotak MF | ~0.52% | ~₹12,814 Cr |
Note: Expense ratios and AUM are approximate as of June 2026. Always verify current figures from the AMC's fact sheet before investing. Nippon India Gold ETF leads by AUM; ICICI Prudential has the lowest expense ratio in this group.
Gold ETF vs Physical Gold vs Sovereign Gold Bond
| Feature | Gold ETF | Physical Gold | Sovereign Gold Bond |
|---|---|---|---|
| Purity | 99.5% guaranteed | Variable | Price-linked to gold |
| Storage | None needed (demat) | Safe/locker required | None needed (demat) |
| Liquidity | High — sell any market day | Low — sell to jeweller | Medium in Secondary Markets, but comes with a 8-yr maturity |
| Interest income | None | None | 2.5% per year |
| LTCG tax | 12.5% (after 12 months) | 12.5% (after 24 months) | Tax-free at maturity* |
| Minimum investment | 1 unit (~₹150–155) | As per jeweller | 1 gram (~₹15,000+) |
*SGB capital gains are tax-free at maturity only for original subscribers who hold to the full 8-year term. From April 2026 (Budget 2026), capital gains on SGBs purchased on the secondary market are taxed at 12.5% LTCG after 12 months.
Tax on Gold ETFs — Finance Act 2024 rules
The Finance Act 2024 (effective July 23, 2024) updated the tax treatment of listed Gold ETFs:
- Holding period for LTCG: 12 months for listed Gold ETFs traded on NSE/BSE.
- LTCG tax rate: 12.5% without indexation on all gains.
- STCG (held less than 12 months): Gains added to your total income and taxed at your applicable slab rate.
- No ₹1.25 lakh exemption: Unlike equity ETFs, there is no annual LTCG exemption threshold. The entire gain is taxable at 12.5% once the 12-month holding period is met.
Note: Gold Fund of Funds (unlisted, not traded on exchange) has a 24-month LTCG threshold. Physical gold also remains at 24 months. The 12-month threshold applies specifically to listed Gold ETFs.
Who should invest in Gold ETFs?
Gold ETFs are suitable if you:
- Want to allocate 5–15% of your portfolio to gold as a hedge against inflation or equity market volatility.
- Don't want the hassle of physical gold storage and making charges.
- Need liquidity — you might need to sell at short notice.
- Want to invest in small amounts — even a single unit at ₹150–160 is accessible.
If you're comfortable with an 8-year lock-in and want the 2.5% annual interest plus tax-free maturity (for original subscribers), Sovereign Gold Bonds are more tax-efficient. But SGBs are not being issued freshly by the government as of 2024-25, so availability on the secondary market is limited, and secondary market purchases no longer get the capital gains tax exemption under Budget 2026 rules. For flexibility and liquidity, Gold ETFs remain the cleanest option.