Gold exchange-traded funds mine a rich vein: The price dip pays off

Recent Customs duty cut has sparked a gold rush, driving ETF inflows to their highest level since February 2020

Investments in gold exchange-traded funds (ETFs) surged to Rs 1,337 crore in July, marking an 84 per cent increase month-on-month and the highest level since February 2020.

Venkat Nageswar Chalasani, chief executive officer of the Association of Mutual Funds in India, attributed the rise to the slump in gold prices following the Customs duty announcement in the Union Budget.

In the Budget announced on June 23, the government lowered the Customs duty from 15 per cent to 6 per cent. This announcement led to a drop in both physical gold and gold ETF prices, though the magnitude of the decline differed.

On July 23, most gold ETFs were traded at a premium to their net asset values, particularly towards the end of the trading session, due to heightened demand.

Gold investors had another reason to celebrate following the Budget, as a revision in the definition of debt funds provided tax relief for gold ETFs, along with several other mutual fund categories.

Previously classified with debt funds in 2023, gains from gold ETFs were taxed at the investor’s slab rate, regardless of the holding period. However, the recent change means gains will now qualify for long-term capital gains taxation at 12.5 per cent if held for a year. This new tax structure will take effect in April 2026.

Investments in gold ETFs have remained elevated since May 2024. The total investment in gold ETFs for the first four months of 2024-25 stands at Rs 2,495 crore, compared to Rs 5,248 crore in inflows for 2023-24.