Indians have bought gold for centuries as jewellery, coins and bars. A gold ETF (gold exchange-traded fund) lets you own gold through your demat account instead. Each unit is backed by real gold held in a vault, and you buy and sell units on the stock exchange like a share. This guide explains how a gold ETF works, what it costs, what decides its price, and how it compares with other ways of owning gold.
What a gold ETF is
A gold ETF is a mutual fund scheme run by an asset management company (AMC) under SEBI rules. Investors' money is used to buy physical gold of high purity, which is stored with a custodian (a bank or vault company appointed by the fund) and checked by auditors. The fund issues units, and each unit represents a small, fixed quantity of gold, for example close to one gram or a fraction of a gram depending on the fund.
The units are listed on NSE and BSE. You buy them through your broker during market hours, hold them in your demat account, and sell them on the exchange when you want cash. You never receive the gold itself; you own a share of the fund's gold.
The live gold price behind the ETF
A gold ETF's value follows the gold price in India. The most-watched live rate is the MCX gold price, shown here with the rate per gram:
Look at the change for the day. A gold ETF's NAV for the day usually moves by a similar percentage, because both follow the same domestic gold price. Small differences come from timing (the NAV uses the day's reference price, MCX is futures and trades into the night) and from the ETF's costs.
How the NAV is worked out
Every day the fund values its gold at the domestic price of gold, which is built from the international dollar price, the rupee and import duty (the gold price guide explains each step). Then it deducts its costs:
NAV per unit = (gold held × domestic gold price + cash − expenses) ÷ units outstanding
Example: suppose one unit represents about 1 g of gold and the domestic price is ₹13,900 per gram (₹1,39,000 per 10 g). The NAV is then close to ₹13,900, slightly lower after accumulated expenses. If gold rises 2% to ₹14,178 per gram, the NAV rises by about 2% too.
During the day, the ETF's market price on the exchange can be slightly above or below this NAV. The ETF price vs NAV guide explains why and how to avoid overpaying.
Costs of a gold ETF
- Expense ratio. A yearly fee, taken a little each day from the fund's value, that pays for vaulting, insurance, audits and management. Compare funds on this; see the expense ratio guide.
- Brokerage and charges. Paid to your broker and the exchange each time you buy or sell.
- Bid-ask spread. The gap between the best buy and sell price on the exchange. Large gold ETFs have tight spreads; small ones can be wider.
- Tracking difference. Over time, the ETF's return trails the gold price by roughly its costs.
There are no making charges, no wastage deductions and no purity disputes, which are the main hidden costs of jewellery.
Buying and selling a gold ETF, step by step
- Open a demat and trading account with a broker if you do not have one.
- Pick a fund. Compare gold ETFs on expense ratio, size, daily traded value and how closely they have tracked the gold price. The ETFs page lists them with prices.
- Check the indicative NAV (iNAV), the live estimate of what one unit is worth, on the fund house or exchange website.
- Place a limit order during market hours (09:15 to 15:30) at or near the iNAV, for the number of units you want.
- Hold the units in your demat account. There is nothing to store and nothing to insure at home.
- To sell, place a sell order on the exchange; the money reaches your trading account after settlement.
If you do not want a demat account, a gold fund-of-fund lets you invest through an ordinary mutual fund, including a monthly SIP, at a slightly higher total cost, because you pay the expenses of both funds.
Gold ETF compared with other ways to own gold
| Route | What you own | Main costs | Points to note |
|---|---|---|---|
| Jewellery | Physical gold, usually 22 carat | Making charges, GST, resale deductions | Use value, but costly as an investment |
| Coins and bars | Physical gold | Premium over the rate, GST, storage | Resale price can be below the rate |
| Gold ETF | Units backed by vaulted gold | Expense ratio, brokerage, spread | Needs a demat account; traded in market hours |
| Gold fund-of-fund | Mutual fund units that invest in a gold ETF | Both funds' expenses | No demat needed; SIP possible |
| MCX gold futures and options | Leveraged contracts | Brokerage, margin, roll costs | Short-term trading; see the gold options guide |
Government-issued gold bonds have also been available in the past, paying a small interest on top of the gold price; check with the RBI whether new issues are open. Unregulated "digital gold" sold by apps is not a SEBI-regulated product, so its protections differ from an ETF's.
How investors use gold ETFs
- Diversification. Gold has often moved differently from shares, rising in some periods of stress. Some investors hold a small share of their portfolio in gold for this reason. It does not always work; gold can fall for years too.
- A hedge against a weaker rupee. Because the Indian gold price includes the dollar to rupee rate, gold has historically gained when the rupee fell.
- Saving for future jewellery. Some families accumulate gold ETF units and sell them when they need to buy jewellery, avoiding storage risk in the meantime.
Tax on gold ETFs has changed several times in recent years. Check the current rules with a tax adviser before you buy or sell.
Risks and common mistakes
- Gold price risk. The ETF is gold. If gold falls 15%, the ETF falls about 15%.
- No income. Gold pays no interest or dividend. All return comes from the price.
- Buying at a premium. On days of heavy buying, an ETF's price can trade above its NAV. Check the indicative NAV and use a limit order.
- Choosing an illiquid fund. A small ETF with little trading can be hard to sell at a fair price.
- Treating gold as a short-term trade. Gold can stay flat or fall for long stretches; most investors hold it for years.
You can compare listed gold ETFs, their prices and their recent moves on the ETFs page.