Simplifying Budget 2024’s Impact on Gold Investments
Gold is a part of Indian culture and history for ages that symbolizes wealth and purity. Right from the days when gold coins were used as a means of trade by kings and queens to this day and age where families celebrate occasions by decorating themselves with gold ornaments, the importance has only increased. With the arrival of the digital age, India is witnessing a shift from gold into electronic formats like Gold ETFs (Exchange Traded Funds) and Gold Fund of Funds (FoFs).
This is also allowing investors to get hold of the yellow metal. Unlike physical gold, these digital gold options offer greater convenience and assurance.
Both Gold ETFs and Gold FoFs are held in high-quality gold, thus assuring purity. They are kept electronically in a Demat account, which does not require storage and gives the best price transparency. In addition, they are liquid investments, and one can buy and sell easily. More so, the Gold ETFs have been chosen due to tax benefits and have long-term capital gains tax advantage.
Earlier, tax treatment for Gold ETFs and Gold FoFs was quite on par with each other. Gold ETFs were taxed at 20% long-term capital gains with indexation benefits, provided they were held for more than 36 months. Even under the old regime, the taxation structure of Gold FoFs was also similar to that of non-equity funds.
During an investment strategy discussion session, an expert presented on tax implications of the recent additions of Gold ETF and Gold Fund of Funds brought to the Union Budget of 2024. The expert detailed how the new structure influences these gold investment platforms while providing some golden advice that can be used for better returns from investors. The insights covered comprehensive changes in the framework along with the need to appreciate that the two vehicles should not be confused for correct planning.
Budget 2024 Brings a Change
With the introduction of Budget 2024, there was a change in taxation structure for both Gold ETFs and Gold FoFs. Redemptions after March 2025 would attract slab rates on short-term gains and a flat rate of 12.5% on long-term gains.
However, the holding period to qualify as long term varies between the two. The Gold ETFs qualify for long-term status after a holding period of 12 months, while Gold FoFs require a holding period of 24 months.
Benefits of Faster Long-Term Benefits
This difference in holding periods makes Gold ETFs a tax-efficient choice for investors seeking faster tax benefits. Long-term tax benefits are now available after only one year of holding, and with greater flexibility and appeal to investors who prefer faster turnover, Gold ETFs have greater appeal. Gold FoFs, however, require an investment period of two years.
Liquidity and Flexibility in Trading
Yet another important advantage of Gold ETFs is their superior liquidity and trading flexibility. Unlike Gold FoFs, which are based on the end-of-day NAV, Gold ETFs can be traded on stock exchanges during the trading day. The investor can make real-time decisions, thus providing him with greater control and liquidity over his investments.
The gold ETFs are preferred for those who seek flexibility, quick tax benefits, and real-time trading. Gold FoFs would still appeal to those with longer horizons, but the advantages of gold ETFs in the current taxation framework make them a more efficient and accessible investment option for many.
This distinction is very important as the financial landscape evolves to understand whether one is making the right investment in gold for either cultural significance or wealth building.
