What Budget 2026 means for gold investors
The Union Budget for Financial Year 2026-2027 was announced earlier this month, with one of the notable announcements relating to Sovereign Gold Bonds (SGBs). Currently, capital gains arising from redemption of SGBs at maturity are exempt from tax, whether the bonds were purchased at issuance or acquired later from the secondary market, provided they are held until maturity. Effective 1 April 2026, this exemption will be limited only to investors who subscribed to the SGBs at the time of issuance by the RBI and hold them till maturity.
Investors who buy SGBs from the secondary market will no longer qualify for tax-free redemption. Capital gains tax continues to apply where SGBs are sold on the exchange before maturity. SGBs have a tenure of eight years, although premature redemption is permitted after five years, but only on specific interest payout dates.
Also Read | Silver ETFs deliver 62% XIRR since launch, outpace gold ETFs’ 42%. Should allocation strategies change?
Following this change, gains on secondary market purchases will be taxed at the investor’s slab rate if sold within 12 months, and at 12.5% without indexation if held for more than 12 months. This brings their tax treatment broadly in line with Gold ETFs, which offer greater liquidity without any lock-in.
Given that there have been no fresh issuances of SGBs by the RBI since early 2024, incremental investments in SGBs can currently be made only through the secondary market route. Consequently, this change is relevant for investors considering fresh allocations to SGBs, prompting a reassessment of gold investment strategies.
Both SGBs and Gold ETFs are designed to track the price movements of gold and pass the returns on to investors. While Gold ETFs charge investors an annual expense ratio, SGBs do not. SGBs also pay investors an annual interest of 2.5%, which is taxable.
However, investment returns are not determined solely by taxation and expenses. Liquidity plays an equally important role, as it determines how easily an investment can be converted into cash without affecting its market value. Highly liquid instruments provide greater flexibility and ease of exit, while relatively illiquid investments may expose investors to pricing inefficiencies and timing risks.
Lower trading volumes in the secondary market result in SGBs often trading with wider bid-ask spreads and occasionally trading at discounts to the intrinsic gold value at the time of selling, hurting investors’ ability to sell at fair market values and, in turn, hurting returns. Gold ETFs typically offer higher liquidity and tighter bid-ask spreads, enabling investors to transact efficiently close to fair prices.
Thus, while SGBs do not charge an explicit expense ratio like Gold ETFs, they carry implicit costs in the form of taxable interest income, potential liquidity discounts when sold on exchanges, and reduced flexibility due to their long maturity period.
Given gold’s increasing importance in investor portfolios amid today’s uncertain geopolitical and macroeconomic environment, and considering the volatility in gold prices, tactically allocating to gold and rebalancing portfolios periodically has become important. Gold ETFs, with their relatively higher secondary market liquidity, can effectively facilitate such tactical allocation and rebalancing.
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Gold ETFs are backed by physical gold of the highest purity, helping address concerns related to purity usually associated with investing in gold. The underlying gold is stored in professional vaults, eliminating storage and security challenges for investors. Each Gold ETF unit typically represents 0.01 grams of gold, making gold investments more affordable and accessible.
Investors should consider expense ratios and tracking errors while selecting Gold ETFs. Lower expense ratios ensure that a larger portion of the investment remains deployed in the underlying asset, while lower tracking error reflects how efficiently the ETF mirrors gold price movements.
Investments in Gold ETFs can be made through a Demat account. Investors who prefer investing through the mutual fund route may consider a Gold Fund of Funds. These funds invest in Gold ETFs, offering investors all benefits of Gold ETFs for a marginal additional expense. Capital gains from these funds are taxed as long-term capital gains after a holding period of 24 months.
(Author of the article is Chintan Haria, Principal, investment strategy at ICICI Prudential AMC)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and Twitter handle.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com)
Investors who buy SGBs from the secondary market will no longer qualify for tax-free redemption. Capital gains tax continues to apply where SGBs are sold on the exchange before maturity. SGBs have a tenure of eight years, although premature redemption is permitted after five years, but only on specific interest payout dates.
Also Read | Silver ETFs deliver 62% XIRR since launch, outpace gold ETFs’ 42%. Should allocation strategies change?
Following this change, gains on secondary market purchases will be taxed at the investor’s slab rate if sold within 12 months, and at 12.5% without indexation if held for more than 12 months. This brings their tax treatment broadly in line with Gold ETFs, which offer greater liquidity without any lock-in.
Given that there have been no fresh issuances of SGBs by the RBI since early 2024, incremental investments in SGBs can currently be made only through the secondary market route. Consequently, this change is relevant for investors considering fresh allocations to SGBs, prompting a reassessment of gold investment strategies.
Both SGBs and Gold ETFs are designed to track the price movements of gold and pass the returns on to investors. While Gold ETFs charge investors an annual expense ratio, SGBs do not. SGBs also pay investors an annual interest of 2.5%, which is taxable.
However, investment returns are not determined solely by taxation and expenses. Liquidity plays an equally important role, as it determines how easily an investment can be converted into cash without affecting its market value. Highly liquid instruments provide greater flexibility and ease of exit, while relatively illiquid investments may expose investors to pricing inefficiencies and timing risks.
Lower trading volumes in the secondary market result in SGBs often trading with wider bid-ask spreads and occasionally trading at discounts to the intrinsic gold value at the time of selling, hurting investors’ ability to sell at fair market values and, in turn, hurting returns. Gold ETFs typically offer higher liquidity and tighter bid-ask spreads, enabling investors to transact efficiently close to fair prices.
Thus, while SGBs do not charge an explicit expense ratio like Gold ETFs, they carry implicit costs in the form of taxable interest income, potential liquidity discounts when sold on exchanges, and reduced flexibility due to their long maturity period.
Given gold’s increasing importance in investor portfolios amid today’s uncertain geopolitical and macroeconomic environment, and considering the volatility in gold prices, tactically allocating to gold and rebalancing portfolios periodically has become important. Gold ETFs, with their relatively higher secondary market liquidity, can effectively facilitate such tactical allocation and rebalancing.
Also Read | Build a boring thali: Radhika Gupta’s 65-10-10-15 multi-asset formula for your portfolio
Gold ETFs are backed by physical gold of the highest purity, helping address concerns related to purity usually associated with investing in gold. The underlying gold is stored in professional vaults, eliminating storage and security challenges for investors. Each Gold ETF unit typically represents 0.01 grams of gold, making gold investments more affordable and accessible.
Investors should consider expense ratios and tracking errors while selecting Gold ETFs. Lower expense ratios ensure that a larger portion of the investment remains deployed in the underlying asset, while lower tracking error reflects how efficiently the ETF mirrors gold price movements.
Investments in Gold ETFs can be made through a Demat account. Investors who prefer investing through the mutual fund route may consider a Gold Fund of Funds. These funds invest in Gold ETFs, offering investors all benefits of Gold ETFs for a marginal additional expense. Capital gains from these funds are taxed as long-term capital gains after a holding period of 24 months.
(Author of the article is Chintan Haria, Principal, investment strategy at ICICI Prudential AMC)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and Twitter handle.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com)
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