Gold ETFs ride the updraft: Tax shifts flip the switch on record inflows

LTCG tax perks and bond drought create perfect storm

August saw a record influx of Rs 1,611 crore into gold exchange-traded funds (ETFs), surpassing the previous high of Rs 1,483 crore set in February 2020.

This uptick in investment signals a renewed interest in gold, driven by the reintroduction of long-term capital gains (LTCG) tax benefits and the absence of new sovereign gold bond issues.

In just two months, gold ETFs have attracted Rs 2,948 crore, matching the total investments from the previous six months.

The Union Budget announcement on July 23, which restored LTCG tax benefits for gold ETFs and gold fund of funds, has been pivotal in this trend.

For redemptions made after April 2026, the applicable tax rate will be 12.5 per cent, provided the investment is held for at least two years.

Currently, gains are taxed at the investor’s slab rate.

Experts point to the August correction in gold prices as a key factor in the increased inflows, making gold an appealing investment option.

“This boost was partly driven by a correction in gold prices during August, leading to heightened buying activity among investors. Global inflationary pressures and uncertainties around interest rate adjustments have reinforced gold’s position as a safe haven and hedge against inflation. These factors have consistently attracted investors to gold in recent years,” said Himanshu Srivastava, associate director and manager of research at Morningstar Investment Research India.