Gold ETF AUM has tripled to ₹1.71 lakh crore in two years — have you already missed the trade or is there more to come?

Two years ago, gold ETFs in India were a niche product — useful, efficient, but not particularly exciting. Total AUM across all gold ETF schemes was approximately ₹59,000 crore. Today, that number stands at ₹1.71 lakh crore — a 191% increase. That kind of growth in a two-year window is not normal for any mutual fund category, and it does not happen without a fundamental change in either investor behaviour, market conditions, or both.

In this case, all three changed simultaneously.

The SGB vacuum

The single most structural driver of gold ETF AUM growth is a policy decision that most investors remember as a footnote: the Government of India discontinued the Sovereign Gold Bond scheme in February 2024 with no replacement announced. SGBs had been India's most tax-efficient gold investment vehicle — they offered 2.5% annual interest on top of gold price appreciation, and long-term capital gains on maturity were completely tax-exempt. Between 2015 and 2024, the government issued 67 tranches of SGBs worth approximately ₹72,274 crore, absorbing enormous retail demand for paper gold.

When SGBs were discontinued, that demand did not disappear. It redirected — primarily into gold ETFs and gold fund of funds. There is no other regulated, demat-linked, physically-backed paper gold alternative in India that provides comparable convenience. Physical gold carries making charges, storage costs, and purity risk. Gold mutual funds and ETFs do not. The SGB discontinuation created a structural demand shift toward gold ETFs that continues to compound every month as existing SGB tranches mature and investors reinvest the proceeds.

The West Asia crisis amplifier

Into this structurally supportive environment came the West Asia crisis — US and Israeli strikes on Iran beginning in late February 2026, the effective closure of the Strait of Hormuz, and the consequent surge in global risk aversion that is gold's natural fuel. Gold is the oldest macro hedge in the world, and it performs best when the combination of geopolitical uncertainty, inflation, and currency stress is simultaneously elevated — exactly the conditions India has been living through for ten weeks.

International gold prices have risen to approximately $4,697 per ounce — a level that would have seemed extraordinary eighteen months ago. Domestic MCX gold hit ₹1,64,497 intraday on May 13 following the government's import duty hike from 6% to 15%, before easing slightly to ₹1,61,700 on May 14. The rupee at 96.05 adds an additional layer: even if international gold prices stopped moving tomorrow, further rupee depreciation would continue to push domestic gold prices higher in rupee terms.

Gold ETF investors received the full benefit of this move — their NAVs track domestic gold prices, which incorporate both the international price movement and the rupee depreciation effect.

The import duty hike: a complication for physical gold, a tailwind for ETFs

The government's midnight notification on May 12 raising gold import duty to 15% from 6% — reversing the cut introduced in Union Budget 2024-25 — has created a new dynamic. Higher import duty raises the landed cost of physical gold, pushes domestic prices above import parity, and widens the smuggling margin to an estimated ₹14 lakh per kilogram. It also makes physical gold purchases more expensive for retail buyers.

For gold ETF investors, the import duty hike is largely neutral to positive. ETFs hold physical gold that was imported before the duty hike at lower costs, and the higher domestic gold price environment — which the duty hike reinforces — translates directly into higher NAVs. New gold purchased by ETF schemes post-hike will be more expensive, but the vast majority of ETF gold holdings were accumulated at lower duty levels.

Have you already missed the trade?

This is the question every investor is asking after watching gold ETF NAVs surge. The answer requires separating two distinct questions: has the price run already happened, and has the structural case for gold in a portfolio changed?

On the price run: yes, a significant portion has already occurred. Gold at $4,697 per ounce and MCX gold at ₹1,61,700 per 10 grams reflect elevated geopolitical risk, rupee weakness, and import duty — all of which are priced in. If the Strait of Hormuz reopens through a diplomatic resolution, Brent crude corrects from $109 toward $75-80, and the rupee recovers toward 88-90, gold prices would likely correct meaningfully in both dollar and rupee terms. Anyone buying gold today is buying a crisis premium, not a baseline value.

On the structural case: it has not changed and arguably strengthened. Gold serves two purposes in a portfolio — it hedges against currency depreciation and against systemic risk events. With SGBs discontinued and no replacement in sight, gold ETFs and fund of funds are the only efficient vehicle to maintain this hedge. A 5-10% portfolio allocation to gold — maintained consistently through SIP rather than deployed as a lump sum at current elevated prices — remains a structurally sound diversification strategy regardless of where short-term prices move.

The investors who have benefited most from the gold ETF surge are those who maintained a consistent 5-10% gold allocation through SIP over the past two to three years — not those who rushed in after the crisis began. That is the lesson worth internalising.

Gold ETF vs gold fund of funds — which should you use?

Gold ETFs trade on stock exchanges like shares and require a demat account. Their expense ratios are typically 0.10-0.25% — among the lowest of any mutual fund category. However, buying and selling involves brokerage and the NAV you receive depends on the market price at the time of your transaction, which may differ slightly from the declared NAV.

Gold fund of funds invest in gold ETFs and do not require a demat account. They allow SIP directly through a mutual fund platform and are more accessible for investors who do not have or want to manage a demat account. Their expense ratios are slightly higher — typically 0.10-0.25% on top of the underlying ETF expense ratio — but the convenience and SIP facility make them the preferred choice for most retail investors building a long-term gold allocation.

Both are taxed identically: capital gains are added to income and taxed at your applicable slab rate for units held less than 24 months, and at 12.5% without indexation for units held beyond 24 months — a change introduced in the Union Budget 2024-25 that applies to gold funds.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Please consult a SEBI-registered financial advisor or a SEBI-registered investment adviser before making investment decisions. Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing.