Gold ETFs - Meaning, How it Works, and Taxation
Introduction to Gold ETF
A Gold Exchange Traded Fund (ETF) is a mutual fund scheme that tracks the domestic price of physical gold. It represents ownership of physical gold in paper or dematerialized form. Essentially, investing in a Gold ETF is like owning gold without the hassle of physical storage, purity concerns, or high making charges.
Investing in Gold ETFs provides a combination of the flexibility of stock investment and the exposure of gold subject to tracking error. These ETFs are traded on recognized stock exchanges, just like stocks.
What is a Gold ETF?
A Gold ETF is a mutual fund scheme that invests in standard gold bullion (99.5% pure), making it easy to track the price and understand the investment value.
When you buy a unit of a Gold ETF, the fund house purchases the corresponding amount of physical gold and stores it in secure vaults with a registered custodian. The value of your ETF unit will rise and fall with the market price of gold.
How to Invest in Gold ETFs?
Investing in Gold ETFs is a simple, three-step process:
- Open a Demat and Trading Account: Since Gold ETFs are traded on stock exchanges, you need both a demat account (to hold the ETF units) and a trading account (to place buy/sell orders) with a broker.
- Place an Order: You can buy or sell Gold ETFs through your trading account in real-time during market hours, just like any other stock.
- Settlement: Once the transaction is complete, the Gold ETF units are credited to your demat account.
What are the Features of Gold ETFs?
How are Gold ETFs taxed?
The tax treatment for Gold ETFs depends on the holding period of the investment.
Short-Term Capital Gains (STCG)
If you sell your Gold ETF units within 1 year (12 months) of purchase, any profit is considered a Short-Term Capital Gain (STCG).
- Tax Rate: STCG is added to your total income and taxed according to your applicable income tax slab rate.
Long-Term Capital Gains (LTCG)
If you sell your Gold ETF units after holding them for more than 1 year (12 months), the profit is considered a Long-Term Capital Gain (LTCG).
- Tax Rate: LTCG is taxed at 12.5% without indexation
Is Gold ETF a good investment?
For most investors, Gold ETFs serve as a useful diversification tool. Here’s why you might consider adding it to your portfolio:
- Portfolio Hedge: Gold has historically been proven to be a hedge against stock market volatility
- Inflation Protection: Over the long term, gold has historically maintained its purchasing power, making it a reliable hedge against rising inflation and currency devaluation.
- No "Locker" Stress: Unlike physical jewelry or bars, you don't need to worry about bank lockers, theft, or insurance. The gold is held securely in professional vaults.
Why invest in Gold ETFs?
Gold ETFs offer a modern, cost-efficient way to own gold without the physical burdens. Since they trade like stocks, you benefit from high liquidity, allowing you to buy or sell units instantly during market hours subject to liquidity. You also save significantly by avoiding making charges, GST, and storage fees typically associated with jewelry or coins. Every unit is backed by 99.5% pure gold held in secure vaults, eliminating any concerns about quality or theft. With the ability to start small - investing in as little as one unit - Gold ETFs can be considered as a tool for diversifying your portfolio and hedging against inflation in 2026.
Disclaimer - Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Published on Jan 23rd, 2026