Should You Buy Gold ETF as PM Modi Urges Indians to Avoid Physical Gold? All You Need to Know

Gold ETF investments in India are now in the spotlight after Prime Minister Narendra Modi, at a public address on 10 May 2026, appealed to Indian citizens to voluntarily pause physical gold purchases for one year in order to protect the country’s foreign exchange reserves. While the appeal specifically targeted physical gold buying, including jewellery purchases for weddings, it raises a critical question for investors: if physical gold is being discouraged, does a gold ETF become the smarter alternative route to maintain gold exposure in your portfolio?

India imported gold worth over $35 billion in FY25, making it one of the country’s largest contributors to the current account deficit alongside crude oil. PM Modi’s appeal, framed as a matter of national economic responsibility amid the ongoing West Asia conflict and crude oil above $104 per barrel, is directed at import-driven physical gold demand, not at domestic gold-backed investment products.

According to Sandip Raichura, CEO of Retail Broking and Distribution at PL Capital, gold ETFs and Electronic Gold Receipts (EGRs) are policy-friendly because they help recycle domestic gold already present in India rather than driving fresh imports from abroad. This distinction is critical for investors evaluating whether to maintain gold exposure through a gold ETF rather than physical metal.

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What Is a Gold ETF and How Does It Work in India

A gold ETF is an exchange-traded fund listed on Indian stock exchanges that tracks the domestic price of physical gold. Each unit of a gold ETF represents approximately 1 gram of gold of 99.5 percent purity, held by the fund house in physical form with an approved custodian.

Investors buy and sell gold ETF units through a demat and trading account during market hours, just like listed equity shares. The price of the gold ETF moves in line with the domestic gold spot price, allowing investors to participate in gold price movements without the hassle of storing physical metal, paying making charges or worrying about purity standards.

As of February 2026, India had 25 gold ETFs with a combined AUM of Rs 1.83 lakh crore and 1.21 crore folios, reflecting the growing scale of domestic investor participation in this asset class. Gold ETF AUM as a share of total mutual fund AUM has risen to 2.3 percent from 0.9 percent a year ago, signalling a structural shift in how Indian retail investors access gold.

Check live gold ETF prices and NAV data on the Check the Univest Screener for live data.

Why PM Modi’s Appeal Makes Gold ETF the More Relevant Option Now

Gold ETF Does Not Add to India’s Import Bill

The core economic rationale behind PM Modi’s appeal is that physical gold purchases drain India’s foreign exchange reserves because India imports 700 to 800 tonnes of gold annually. A gold ETF, by contrast, does not trigger fresh gold imports. The fund house holds gold already imported and stored in Indian vaults. Buying a gold ETF unit simply transfers ownership of existing gold, making it a forex-neutral transaction for the Indian economy.

This is also why the government and the RBI have consistently supported gold ETFs and SGBs as alternatives to physical gold. Fresh SGB issuances have been paused since early 2024, but gold ETFs continue to receive full policy backing as the preferred route for domestic gold investment.

Same Price Exposure, None of the Physical Gold Risks

A gold ETF delivers identical price exposure to physical gold without the associated risks of holding physical metal. There are no storage costs, no theft or burglary risk, no purity concerns and no making charges. At current gold prices of Rs 15,213 per gram (24K), the transaction costs of buying physical gold including making charges of 10 to 25 percent, GST and assay costs add Rs 1,500 to Rs 4,000 per gram to the effective purchase price. A gold ETF carries only a low annual expense ratio of 0.10 to 0.65 percent.

Gold ETF Liquidity Is Vastly Superior

Physical gold, particularly jewellery, cannot be quickly converted to cash at full market value. Selling jewellery typically involves dealer discounts of 5 to 15 percent on the buyback price. A gold ETF can be sold at the prevailing market price during any trading session on NSE or BSE, with settlement in T plus 2 days. This liquidity advantage makes the gold ETF a far more efficient vehicle for investors who may need to monetise their gold holding at short notice.

Gold ETF Taxation in India for FY2026

The Union Budget 2026 kept the gold ETF tax structure unchanged from the previous year. Understanding the tax rules is essential before deciding to invest.

• Short Term Capital Gains (STCG): If you sell gold ETF units within 12 months of purchase, the profit is taxed at your regular income tax slab rate.
• Long Term Capital Gains (LTCG): If you hold gold ETF units for more than 12 months, profits are taxed at 12.5 percent without the benefit of indexation.
• Physical Gold vs Gold ETF Tax: Physical gold also attracts 12.5 percent LTCG after 24 months of holding. Gold ETF becomes eligible for LTCG after just 12 months, which is an advantage for medium-term investors.
• GST Advantage: There is no GST on gold ETF purchases. Physical gold jewellery attracts 3 percent GST, adding directly to the cost of acquisition.
• Import Duty: The government reduced gold import duty to 6 percent in 2024 from 15 percent earlier, which has reduced the cost of gold held by ETF custodians and improved gold ETF tracking accuracy.

Gold ETF vs Physical Gold vs SGB: Which Is Better in 2026

• Gold ETF: Listed, liquid, low cost (expense ratio 0.10 to 0.65%), no storage risk, LTCG at 12.5% after 12 months. Policy-friendly as no fresh imports triggered.
• Physical Gold (Jewellery): High making charges (10 to 25%), 3% GST, storage risk, lower resale value, PM Modi’s appeal specifically targets this category.
• Physical Gold (Coins/Bars): No making charges, but storage and purity verification costs exist. PM Modi’s appeal is directed at this category as well.
• Sovereign Gold Bond (SGB): No new issuances since early 2024. Existing bonds trade at a premium on exchanges. 2.5% annual interest is a key advantage but liquidity in secondary market is limited.
• Digital Gold: Platform-specific product. Not regulated as a financial instrument under SEBI. Trust and storage risks exist with the platform provider.

Top Gold ETFs in India to Watch in 2026

India currently has 25 active gold ETFs as of February 2026. The following are among the most widely tracked by investors based on AUM and liquidity.

• Nippon India ETF Gold BeES: The oldest and most liquid gold ETF in India, tracking domestic gold prices. Trades on NSE with high daily volumes, making it the preferred entry point for retail investors accessing gold ETF exposure.
• HDFC Gold ETF: Managed by HDFC AMC, this gold ETF has consistently maintained tight tracking error relative to domestic gold spot prices. A reliable choice for investors who prioritise fund house credibility.
• SBI Gold ETF: Backed by India’s largest public sector bank, SBI’s gold ETF offers institutional-grade gold custody and is popular among conservative investors seeking gold ETF exposure through a trusted brand.
• ICICI Prudential Gold ETF: One of the larger gold ETF offerings by AUM, ICICI Prudential’s gold ETF is actively traded and has maintained competitive expense ratios, making it a cost-efficient choice.
• Kotak Gold ETF: A solid mid-tier gold ETF option with competitive pricing and consistent returns tracking the domestic gold price benchmark.

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How to Buy a Gold ETF in India

• Step 1 – Open a Demat and Trading Account: A gold ETF is bought and sold on stock exchanges like an equity share. You need a demat account with a SEBI-registered broker.
• Step 2 – Research and Screen: Use the Univest Screener to compare gold ETFs by expense ratio, AUM, tracking error and 1-year return before deciding which gold ETF suits your portfolio.
• Step 3 – Place the Buy Order: Search for the gold ETF ticker on your trading app (e.g. GOLDBEES for Nippon India ETF Gold BeES on NSE) and place a limit or market order during trading hours.
• Step 4 – Hold in Demat Account: The gold ETF units are credited to your demat account after T plus 2 settlement. No physical delivery takes place.
• Step 5 – Monitor and Review: Track your gold ETF against the domestic gold spot price to check tracking error. Review your gold allocation as part of your overall portfolio strategy.

Should You Buy a Gold ETF Now in May 2026

The current environment presents a case for gold ETF allocation as part of a diversified portfolio. Gold prices in India remain elevated at Rs 15,213 per gram for 24K metal despite a marginal correction on May 11. Global gold is trading at approximately $4,670 per troy ounce, well above its historical average, supported by the West Asia geopolitical risk premium, the RBI’s continued gold reserve buying and global investor demand for safe-haven assets.

PM Modi’s appeal specifically targets physical gold purchases that drive forex outflows. Gold ETF investors are unaffected by this appeal both in policy terms and in the economic rationale behind it. For investors looking to maintain their strategic gold allocation without holding physical metal, a gold ETF remains a policy-aligned, tax-efficient and liquid vehicle.

However, investors should note that gold prices at current elevated levels carry valuation risk if the West Asia situation de-escalates sharply or if US dollar strengthens significantly. Gold ETF allocation is typically recommended as 5 to 15 percent of a diversified portfolio rather than as a core holding. Consult a SEBI-registered investment advisor before making any allocation decision.

Conclusion

A gold ETF is the most rational way to maintain gold exposure in India following PM Modi’s appeal to avoid physical gold purchases. It delivers identical price tracking without the storage risk, making charges, GST or purity concerns that come with physical gold. Gold ETFs are policy-aligned investments that do not add to India’s import bill. With 25 gold ETFs available in India and combined AUM of Rs 1.83 lakh crore, the infrastructure for gold ETF investing is robust and accessible. Track live gold ETF prices, expense ratios and portfolio allocation tools on Univest.

FAQs

What is a gold ETF and how does it work?

Ans. A gold ETF is an exchange-traded fund that tracks the domestic price of physical gold. Each unit typically represents 1 gram of gold held by the fund in physical form. Investors buy and sell gold ETF units on stock exchanges through a demat account during market hours, just like equity shares, without needing to store any physical metal.

Is gold ETF better than physical gold after PM Modi’s appeal?

Ans. Yes, from both policy and investment efficiency perspectives. PM Modi’s appeal targets physical gold purchases that drain India’s foreign exchange reserves. A gold ETF does not trigger fresh imports as it recycles domestically held gold. Additionally, gold ETFs offer no making charges, no GST, no storage risk, and LTCG eligibility after just 12 months versus 24 months for physical gold.

What is the tax on gold ETF in India in 2026?

Ans. Gold ETF profits are taxed at your income tax slab rate if units are sold within 12 months of purchase (STCG). If held for more than 12 months, profits are taxed at 12.5 percent as LTCG without indexation. The Union Budget 2026 kept these gold ETF tax rules unchanged from the previous year.

Which is the best gold ETF in India in 2026?

Ans. Nippon India ETF Gold BeES (GOLDBEES) is the oldest and most liquid gold ETF in India and is widely regarded as the benchmark choice for retail investors. HDFC Gold ETF, SBI Gold ETF and ICICI Prudential Gold ETF are other strong options. Compare expense ratios, AUM and tracking error on the Univest Screener before choosing the best gold ETF for your portfolio.

Can I buy gold ETF without a demat account?

Ans. No. A gold ETF is a listed financial instrument traded on NSE or BSE and requires a demat and trading account. Alternatively, you can access gold ETF exposure through Gold Fund of Funds (FoFs), which are mutual funds that invest in gold ETFs and can be purchased through a mutual fund platform without a demat account.

What is the current gold price in India on 11 May 2026?

Ans. On 11 May 2026, 24K gold is priced at approximately Rs 15,213 per gram (Rs 1,52,130 per 10 grams) and 22K gold at Rs 13,945 per gram as per IBJA and Goodreturns data. MCX gold futures are trading near Rs 1,51,558 per 10 grams. Gold prices have corrected Rs 8,700 per 100 grams over the past three sessions. These prices are reflected in gold ETF NAVs.

Disclaimer: Investment in the share market is subject to risk. This article is for informational and educational purposes only and does not constitute investment advice. Verify all numbers before investing. Consult a SEBI-registered advisor before making investment decisions.

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