Impact of Budget 2024 on Gold ETFs Vs Gold Fund of Funds
Thu Nov 28 2024
India’s deep-rooted love affair with gold dates back centuries. In the bygone era ofrajas andmaharajas, gold coins were bestowed as rewards, andasharfis were used to trade for commodities. Even today, gold remains more than just an investment asset class; it is deeply ingrained in India’s cultural fabric and every auspicious occasion, from weddings and births to festivals is incomplete without gold, which is considered an auspicious and ‘safe’ investment for families.
As we transition to a digital era, gold has also metamorphosed into digi gold – in the form of Gold Electronically Traded Funds (ETFs) or Gold Fund of Funds, which are fast gaining popularity amongst investors. Unlike physical gold, Digi gold comes with a promise of purity as it is backed by gold of the highest quality. Moreover, ETFs and Fund of Funds are held electronically in a Demat account making them easy to store and make for a liquid investment that offers complete transparency in price and performance. Gold ETFs also offer tax benefits such as long-term capital gains tax.
In the latest episode of Mint Money Shots, presented by Invesco Mutual Fund, Assistant Editor at Mint, Aprajita Sharma, spoke about the tax impact of Gold ETFs and Gold Fund of Funds in Union Budget 2024 and tips on how to gain that extra edge on your investments. Watch the episode below,
“Budget 2024 has made significant changes to the tax treatment of Gold ETFs and Gold Fund of Funds. While both have their own benefits, the budget introduced a key distinction that could reshape how you invest in gold,” she said.
Old Tax Regime
In the old tax regime, Gold ETFs and Gold Fund of Funds had similar tax structures. A 20 per cent Long Term Capital Gains tax was levied on Gold ETFs, with indexation benefits if held for over 36 months. The same applied to Gold Fund of Funds, but they were taxed as non equity Fund of Funds, which also had their own tax rules and classification.
“But post Budget 2024, things have changed. Now, for all redemptions made after March 2025, both Gold ETFs and Gold Fund of Funds will be taxed at slab rates in the short term and at a flat rate of 12.5% in the long term,” Sharma explained.
This is where the distinction comes in. The tenure for both categories of investments in gold to reach long term status are different. While Gold ETFs reach long term status after just 12 months, Gold Fund of Funds require a full 24 months of being invested in to qualify for the same tax benefits.
Quicker Tax Advantages
“This difference in holding period is crucial. For those looking for quicker tax advantages, Gold ETFs allow investors to benefit from the lower long term tax rate in just a year, while Gold Fund of Funds require double that time. This makes gold ETFs a more tax efficient option, especially if you are someone who prefers flexibility and quicker turnover in your investments,” Sharma further said.
Additionally, Gold ETFs offer investors an edge in liquidity and trading flexibility too. Unlike Gold Fund of Funds, which are tied to end of day NAV pricing, Gold ETFs are traded on the stock exchange throughout the day. So, in effect, you can make real time decisions to enter or exit the market during trading hours offering much greater liquidity on your investment.
Source: https://www.livemint.com/