What’s cooking with Gold ETFs in India?

The rise of Gold ETFs in India: Discussing how physical gold held by these funds nearly doubled from 27 tonnes to 55 tonnes by October 2024, and how domestic Gold ETFs attracted ₹12,450 crores in net inflows over 21 months.Defining Gold ETFs: Explaining that they allow ownership of gold without needing a vault, slicing gold bars into digital units that trade like shares.• Drivers of the migration: Highlighting the tax-friendly nudge introduced in the 2024 Union Budget, which slashed the long-term capital gains holding period from 36 months to 12 months, resulting in gains being taxed at a flat 12.5%. Other factors include the scarcity of new Sovereign Gold Bond (SGB) issues and increased allocation by multi-asset funds in India.• The drawbacks: Addressing challenges such as liquidity, tracking error (the gap between the ETF's performance and gold prices), and recurring costs like the expense ratio, brokerage fees, and transaction costs.• The strategy: Concluding that Gold ETFs should be viewed as a tool requiring balance and strategy in an investment toolkit, rather than a hero or a villain