Page 31 - Bullion World Volume 5 Issue 1 January 2025

Bullion World | Volume 5 | Issue 01 | January 2025

prices (e.g., during the 2018-2020 gold rally). custodian is mandated for safekeeping the gold,
• SGBs have been a direct competitor to Gold ETFs, ensuring independence from the fund manager to
especially given their appeal due to the interest paid avoid conflicts of interest. The gold must meet a
over the bond's life. However, since February 2024, purity standard of at least 995%, and its value
there has not been any fresh issuance of SGB. is based on the current market price. Trustees
• Another financial product that gained popularity ensure compliance with SEBI’s regulations,
was digital gold. The main advantages of digital gold including periodic disclosures of holdings and
over gold ETFs are small ticket purchase, extended custodian details. These measures boost investor
market hours and exchange accumulated gold for confidence, reduce risks of fraud, and promote
jewellery at select stores. However, digital gold is not regulatory oversight, contributing to the popularity
regulated. of Gold ETFs in India.
• The India Gold ETF (Exchange-Traded Fund) 4. Expense ratio: Gold ETF expense ratios in India
market has seen significant growth in recent years, have significantly decreased over time. Initially, from
driven by a rising interest in gold as an asset class, 2007-2010, expense ratios ranged from 1.0% to
along with the increasing popularity of ETFs as a 1.5% due to the nascent ETF market. By 2010-2015,
convenient and efficient investment vehicle. as the market matured and competition increased,
these ratios declined to 0.5%-1%. Between 2015
and 2020, further reductions occurred, with some
Key Features of India's Gold ETF Market: large ETFs lowering ratios to around 0.5%, aided by
1. Growth in Popularity: The Gold ETF market in economies of scale and the launch of direct plans.
India has grown steadily, with investors increasingly Key factors include competition, scale economies,
looking to diversify their portfolios and hedge against technological advancements, and regulatory
inflation. The growing acceptance of financial changes like direct plans (2013) and SEBI’s
instruments like ETFs has contributed to this growth, efficiency-driven regulations (2014). This trend is
with more investors seeing gold as a safe haven. expected to continue as investors demand lower
2. Regulatory Support: The Securities and Exchange costs.
Board of India (SEBI) regulates Gold ETFs in
India. These ETFs are listed on the National Stock Taxation
Exchange (NSE) and the Bombay Stock Exchange A key factor driving the growth of gold ETFs is the
(BSE). The government has also made regulatory favourable tax regime introduced in the 2024 budget.
efforts to boost gold investment through initiatives Accordingly, gold ETFs has been classified as debt
like the Sovereign Gold Bond (SGB) scheme, further funds with the holding period for Long-Term Capital
encouraging the shift from physical to financial gold. Gains (LTCG) has been reduced from 3 years to 2 years.
3. SEBI’s guidelines for Gold ETFs focus on ensuring Additionally, the LTCG tax rate has been significantly
transparency and security, requiring 100% physical lowered to 12.5%, with the removal of the indexation
backing by gold for every unit issued, linking the benefit, replacing the previous rate of 20% that included
ETF’s value directly to gold prices. A third-party this

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