Why Are Gold ETFs Suddenly Popular?
In recent years, Indian investors have poured significant money into Gold ETFs, signalling a major shift from traditional physical gold to financial instruments. The number of Gold ETF folios, or investor accounts, more than doubled between July 2024
and July 2026, reaching over 1.25 crore. This surge is driven by several factors: geopolitical uncertainty, volatile stock markets, and a desire for portfolio diversification. As more investors get comfortable with demat accounts, the ease of buying and selling gold electronically has become a powerful draw, attracting record inflows, especially in early 2026.
Storage: Digital Convenience Over Physical Hassle
One of the biggest advantages of Gold ETFs is the elimination of storage concerns. When you buy a Gold ETF unit, you are buying a slice of 99.5% pure physical gold that the fund house holds in secured, insured vaults regulated by SEBI. The units themselves are held electronically in your demat account. This completely bypasses the hassles associated with physical gold, such as finding a secure locker, paying annual rent, and worrying about theft. It also removes any doubts about purity, a common concern when buying or selling jewellery.
Liquidity: Easy to Buy and Sell
Liquidity refers to how quickly you can convert an asset into cash. Gold ETFs excel here. Because they are traded on stock exchanges like the NSE and BSE, you can buy or sell them at market prices anytime during trading hours, just like a stock. The settlement is quick, usually completed within a couple of working days. This is a stark contrast to physical gold, where selling can be a cumbersome process. Finding a buyer, negotiating a fair price without significant deductions, and verifying purity can all cause delays and reduce your final returns.
Costs: Understanding the Expenses
While Gold ETFs are cost-effective, they are not free. The primary costs include the expense ratio, which is an annual fee charged by the fund manager, typically ranging from 0.50% to 0.80%. You will also pay brokerage fees when you buy and sell units, though many discount brokers offer low or zero charges. Finally, there's a small difference called a tracking error, where the ETF's price may not perfectly match the physical gold price. However, these costs are often significantly lower than the expenses of physical gold, which include a 3% GST on purchase, making charges on jewellery that can range from 10% to 25%, and ongoing storage costs.
How They Compare to Other Options
Gold ETFs are not the only alternative to physical gold. Sovereign Gold Bonds (SGBs) are another popular choice issued by the RBI. SGBs offer a fixed annual interest of 2.5% and, crucially, the capital gains are tax-free if held until the full eight-year maturity. In contrast, long-term capital gains from Gold ETFs (held for more than 12 months) are taxed at 12.5% without indexation benefits. However, Gold ETFs offer far superior liquidity, as SGBs can be difficult to sell on the secondary market before maturity. The choice ultimately depends on your investment horizon and need for liquidity. ETFs are ideal for trading and short-to-medium-term holdings, while SGBs are better suited for long-term investors who can hold until maturity to maximise tax benefits.
