Gold ETF vs Gold Mutual Fund: Cost, Tax and Which to Pick

A gold ETF is usually the cheaper option and becomes eligible for the 12.5% long-term tax rate after just 12 months, while a gold mutual fund (a fund of funds that buys gold ETFs) suits investors who want an automatic SIP without a demat account. Both track the same domestic gold price, so the choice comes down to running cost, convenience and how long you plan to hold.

This guide puts the gold ETF and gold fund side by side with the other routes Indians use: jewellery and coins, digital gold, Sovereign Gold Bonds and multi-asset funds. It covers what each one costs, how each is taxed after the April 2025 and Budget 2026 changes, a five-year after-tax comparison in rupees, where gold prices stand now, and how much gold a portfolio typically needs.

Gold ETF vs gold mutual fund: how each works

A gold ETF (exchange-traded fund) is a mutual fund scheme that holds physical gold of 99.5% purity in a vault and lists its units on the stock exchange. You buy and sell units through a broker during market hours, at a price that moves with the domestic gold price. You need a demat and trading account.

A gold mutual fund is normally a fund of funds (FoF): it collects your money and invests it in the AMC’s own gold ETF. You buy it like any other mutual fund, at the end-of-day NAV (net asset value per unit), directly from the AMC or through an app. SIPs of ₹500 or less a month are common, and no demat account is needed.

Because the FoF sits on top of an ETF, you pay two layers of cost: the FoF’s own expense ratio plus the underlying ETF’s. The gap is small in direct plans, but it compounds. Our wider explainer on how ETFs and mutual funds differ covers the mechanics for equity funds too.

What gold ETFs cost now

Expense ratios (TER, the annual fee deducted from the fund’s assets) vary widely across gold ETFs. On Tickertape (as of October 2026), Tata Gold ETF charged 0.35%, ICICI Prudential Gold ETF 0.49%, Kotak Gold ETF 0.52%, HDFC Gold ETF 0.60%, SBI Gold ETF 0.65% and Nippon India ETF Gold BeES 0.81%. Gold BeES is the largest, with about ₹58,629 crore in assets, and usually the most traded.

On top of the TER, an ETF buyer pays brokerage and the bid-ask spread (the gap between the best buy and sell price on the exchange). Spreads are tight in large, liquid ETFs and can be wide in small ones, so check the trading volume before you buy.

Interest in the category is high. Indian gold ETFs took in ₹2,597 crore in August 2026, and total assets reached about ₹1.91 lakh crore, backed by 121.3 tonnes of gold across 1.25 crore investor folios, according to AMFI data compiled by the World Gold Council.

Six ways to own gold in India, compared

The table below compares the main routes on cost, regulation and the tax holding period. Rates are for individuals and apply to sales made in the current tax year.

Route	Main costs	Regulated by	Long-term after	Tax on gains
Jewellery	Making charges, 3% GST, buy-back deductions	BIS hallmarking only	24 months	12.5% if long-term, else slab rate
Coins and bars	3% GST, dealer premium, storage	BIS hallmarking only	24 months	12.5% if long-term, else slab rate
Digital gold (apps)	3% GST, buy-sell spread, storage fees after a period	Not regulated by SEBI or RBI	24 months	12.5% if long-term, else slab rate
Gold ETF	TER about 0.35% to 0.81%, brokerage, spread	SEBI	12 months	12.5% if long-term, else slab rate
Gold FoF	FoF TER plus underlying ETF’s TER, possible exit load	SEBI	24 months	12.5% if long-term, else slab rate
Sovereign Gold Bond (secondary market)	Brokerage, premium or discount to gold price	RBI-issued government security	12 months (exchange sale)	12.5% if long-term; maturity exemption only for original subscribers; 2.5% interest at slab rate
Multi-asset fund	TER of an actively managed fund	SEBI	12 or 24 months, depending on equity share	Equity rules if equity is 65% or more; otherwise 12.5% after 24 months

Physical gold: jewellery, coins and bars

GST on gold is 3% of the bill, and the rate was left unchanged when GST rates were restructured in September 2025. Jewellery also carries making charges, which can run into double-digit percentages of the gold value for intricate designs. When you sell or exchange it, the jeweller pays for the gold content, so the making charges and GST you paid are usually lost.

Coins and bars avoid most making charges, but dealers add a premium and buy back at a lower rate. You also carry the cost and risk of storage, whether a bank locker or insurance. Jewellery has a use beyond investment, which is a fair reason to buy it; just don’t count it as an efficient investment.

Digital gold: SEBI’s November 2025 caution

Digital gold lets you buy fractions of a gram through payment and broking apps, with the metal held by a private vault company. On 8 November 2025, SEBI issued Press Release No. 70/2025 warning that these products are not securities or commodity derivatives, sit outside its oversight, and expose buyers to counterparty and operational risk.

SEBI pointed investors to regulated alternatives instead: gold ETFs, exchange-traded commodity derivatives and Electronic Gold Receipts (EGRs) traded on stock exchanges. Digital gold still attracts 3% GST on purchase, a spread when you sell, and the same 24-month tax rule as physical gold.

Sovereign Gold Bonds: secondary market only

Sovereign Gold Bonds (SGBs) are government securities issued by the RBI, priced in grams of gold and paying 2.5% a year interest on the original issue price. The last tranche, SGB 2023-24 Series IV, was issued on 21 February 2024 at ₹6,263 a gram, and no new tranche has been announced since. The only way to buy SGBs now is on the stock exchange, where trading volumes in many series are thin.

Budget 2026 narrowed their main tax advantage. From 1 April 2026, the capital gains exemption on redemption applies only if you subscribed at the original issue and held the bond continuously until maturity. Buyers on the secondary market pay tax on redemption gains even if they hold to maturity, and premature redemption is no longer exempt.

Multi-asset funds: gold as one ingredient

Multi-asset allocation funds must invest at least 10% in each of three or more asset classes, typically equity, debt and gold or silver. The fund manager rebalances between them, and that rebalancing does not trigger tax for you. The trade-off is a higher, active-fund TER and gold exposure you don’t control. Funds with 65% or more in equity are taxed like equity funds; the rest generally fall under the 24-month, 12.5% rule.

How gold investments are taxed in 2026

Gold taxation changed three times in three years, so many older articles are wrong. Here is the current position for sales made today.

• July 2024: long-term capital gains on gold were cut to 12.5% without indexation. Physical and digital gold became long-term after 24 months, and listed gold ETFs after 12 months.
• April 2025: gold ETFs and FoFs bought on or after 1 April 2023 had been taxed at slab rate however long they were held, because they counted as “specified mutual funds”. From 1 April 2025, that label covers only funds with more than 65% in debt, so gold ETFs and FoFs now get the 12.5% long-term rate again.
• Budget 2026: no change to rates for gold ETFs, FoFs or physical gold. The change was the SGB exemption described above. The new Income-tax Act, 2025, in force from 1 April 2026, kept the same rates and holding periods.

Two points catch people out. The ₹1.25 lakh annual exemption applies only to listed equity and equity funds, not to gold, so every rupee of long-term gold gain is taxed. And a 4% health and education cess applies on top of the tax. For more ways to keep capital gains tax down, see our guide to reducing capital gains tax.

Worked example: ₹5 lakh in gold for five years

Suppose Ananya, in the 30% tax slab, has ₹5,00,000 to put into gold for five years. To compare routes fairly, assume gold rises 8% a year. That is purely an illustration, not a forecast. Over five years the gold price multiplies by 1.08 to the power 5, which is 1.4693. Tax on long-term gains is 12.5% plus 4% cess, or 13% in total.

1. Jewellery (hypothetical making charge of 12% of gold value, 3% GST on the total): gold content = ₹5,00,000 ÷ (1.12 × 1.03) = ₹4,33,426. Making charges are ₹52,011 and GST ₹14,563. After five years the gold is worth ₹4,33,426 × 1.4693 = ₹6,36,845. Gain = ₹1,36,845; tax at 13% = ₹17,790. Net: ₹6,19,055.
2. Coins or digital gold (3% GST, spreads ignored): gold content = ₹5,00,000 ÷ 1.03 = ₹4,85,437. Value = ₹7,13,266. Gain = ₹2,13,266; tax = ₹27,725. Net: ₹6,85,541.
3. Gold ETF (0.5% TER, brokerage ignored): value = ₹5,00,000 × (1.08 × 0.995) to the power 5 = ₹7,16,480. Gain = ₹2,16,480; tax = ₹28,142. Net: ₹6,88,338.
4. Gold FoF (0.7% total cost, held over 24 months): value = ₹5,00,000 × (1.08 × 0.993) to the power 5 = ₹7,09,308. Gain = ₹2,09,308; tax = ₹27,210. Net: ₹6,82,098.
5. SGB bought on the exchange at the gold price, with an issue price one-third of today’s price: interest = 2.5% × ⅓ × ₹5,00,000 = ₹4,167 a year, or ₹20,833 over five years, taxed at 31.2% (₹6,500). At maturity the bond pays ₹7,34,664. Gain = ₹2,34,664; tax = ₹30,506. Net: ₹7,34,664 − ₹30,506 + ₹20,833 − ₹6,500 = ₹7,18,491.

Route	After-tax value	Profit	After-tax return a year
Jewellery	₹6,19,055	₹1,19,055	4.36%
Coins or digital gold	₹6,85,541	₹1,85,541	6.52%
Gold ETF	₹6,88,338	₹1,88,338	6.60%
Gold FoF	₹6,82,098	₹1,82,098	6.41%
SGB (secondary market)	₹7,18,491	₹2,18,491	7.52%

Making charges are the biggest drag: jewellery ends about ₹69,000 behind the ETF. Coins look close to the ETF here only because the example ignores dealer spreads, storage and purity risk, all of which favour the ETF in practice. The SGB comes out ahead because of its interest, but only if you can buy a series near the gold price and with a maturity that suits you.

Between the ETF and FoF the gap is about ₹6,000 over five years. It widens if you sell between 12 and 24 months, when the ETF is taxed at 12.5% but the FoF at your slab rate. You can model other amounts with our lumpsum calculator.

Where gold prices stand now

Domestic gold hit a record ₹1,75,231 per 10 grams in late January 2026 after a 14% gain that month, then eased about 7% by mid-February, according to the World Gold Council. Prices climbed 12% in August 2026 to ₹1,58,854 and fell 4.6% in the first part of September.

On 2 October 2026, 24-carat gold was ₹1,50,280 per 10 grams (Groww retail rate), about 14% below the January record. We don’t forecast gold. The swings of 2026 are a reminder that gold can fall by double digits within weeks, even though it has protected purchasing power over long periods.

How much gold to hold

A common guideline is 5% to 10% of a portfolio in precious metals, covering gold and silver together. Gold earns no income, so its job is to cushion the portfolio when equities or the rupee weaken, not to drive growth. Our guide to asset allocation explains how to set your mix.

Suppose Vikram has a ₹30 lakh portfolio and picks 8% in precious metals, or ₹2,40,000. He might put ₹1,80,000 in a gold ETF and ₹60,000 in silver. If silver interests you, read our assessment of whether to invest in a silver ETF for the long term, as silver swings far more than gold.

Checklist: choosing your gold route

• Have a demat account and invest in lump sums? A low-TER, high-volume gold ETF is usually the cheapest route.
• Want a monthly SIP without a demat account? Choose a direct-plan gold FoF and plan to hold for more than 24 months.
• Considering SGBs? Compare the exchange price with the gold price, check daily volume and note the maturity date.
• Prefer someone else to manage the mix? A multi-asset fund handles rebalancing, at a higher cost.
• Buying jewellery for a wedding or for wear? Insist on a BIS hallmark and an itemised bill, and treat it as consumption.

Common mistakes

• Selling a FoF between 12 and 24 months and expecting the 12.5% rate. Only the ETF qualifies that early.
• Buying SGBs on the exchange for tax-free maturity. That benefit ended for secondary-market buyers from 1 April 2026.
• Picking a gold ETF on past returns. All of them track the same price; differences come from TER, tracking error and liquidity.
• Treating digital gold as regulated. SEBI has said it is not, so there is no regulator to complain to if the platform fails.
• Chasing a rally. Buying heavily after a sharp rise, as many did in January 2026, can mean sitting on a loss for months.

FAQ

Which is better, a gold ETF or a gold mutual fund?

For most investors with a demat account, a gold ETF is slightly cheaper and is taxed at 12.5% after 12 months instead of 24. A gold FoF is better if you want an automatic SIP, have no demat account or prefer buying at NAV without dealing with exchange spreads.

Is a gold ETF better than physical gold?

As an investment, usually yes. A gold ETF has no making charges, no GST on purchase, no storage or purity worries and earlier long-term tax treatment. Physical gold makes sense when you want to wear it or need the metal itself.

Gold ETF vs digital gold: what is the difference?

A gold ETF is a SEBI-regulated mutual fund listed on an exchange. Digital gold is a product sold by private platforms that SEBI says falls outside its regulation. Digital gold also attracts 3% GST and is taxed at slab rate if sold within 24 months.

How is a gold FoF taxed compared with a gold ETF?

Both are taxed at 12.5% without indexation on long-term gains. The difference is the holding period: more than 12 months for a listed gold ETF, more than 24 months for a gold FoF. Shorter-term gains on either are added to your income and taxed at your slab rate.

Can I still buy Sovereign Gold Bonds?

Not from the RBI, because no new tranche has been issued since February 2024. You can buy existing series on the stock exchange through a demat account. Gains on maturity are taxable for secondary-market buyers from 1 April 2026.