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Indian investors are putting incremental financial savings into Gold ETFs much faster than before, with a gradual trend moving away from direct gold ownership and toward investing in these funds. The assets under management (AUM) of Gold ETFs rose from Rs. 62,453 crore in May 2025 to Rs. 1,84,571 crore in May 2026, representing a growth of around 195% in one year, according to the Association of Mutual Funds in India (AMFI). This category currently has 1.23 crore investors, with an increase in retail participation.
The category recorded a net outflow of Rs. 725 crore in May 2026 compared to the net inflow in the category in previous months. As of now, Indian Gold ETFs have gold holdings of 116.3 tons, and net inflows in the portfolio are positive at $3.48 billion YTD.
Although ETFs have been booming in India, physical gold is still the preferred choice of many investors. The World Gold Council (WGC) data shows that India's demand for gold over the past four quarters (Q2 2025 - Q1 2026) was around:
The demand for jewelery is 425 tons
296 tons of bars and coins
51 tons of Gold ETFs were demanded
That equates to almost 14 times the number of gold purchases made physically as compared to the demand for gold ETFs over the same timeframe.
The dependency on gold imports into India is also high. The gold import bill of the country topped a record $71.98 billion in FY2025-26 and imports during the first quarter of 2026 were 186 tons, showing that physical gold remains the preferred choice for household savings.
Gold ETFs are designed to mirror domestic gold prices and provide investors with added convenience. Nippon India Gold BeES, SBI Gold ETF, HDFC Gold ETF and ICICI Prudential Gold ETF are some of the top-grossing schemes and hold almost two-thirds of the industry's AUM.
Last year, the major Gold ETFs' returns were roughly 61-62%, just below the price of gold (before fees and tracking errors). The average annual expense ratio for most of the bigger Gold ETFs ranges from 0.49% to 0.65%.
ETFs get rid of purity, theft, storage and insurance concerns that exist with physical gold. It's easy to trade units on a stock exchange, with trading spreads being low, typically 0.12% for some of the largest ETFs.
Gold coins are still the preferred choice for weddings, gifts, festivals, and as a long-term investment for family wealth. There are other expenses involved in ownership, such as 3% GST, jewelery making fees, locker rentals and resale deductions, depending on purity and dealer margins.
From a taxation perspective, Gold ETFs have become more attractive. They are considered long-term capital assets after 12 months, while gold is considered long-term after 24 months. Both have a 12.5% LTC tax without indexation under the new Tax Rules applicable from Budget 2024 onwards.
Also Read: How to Open a Demat and Trading Account to Buy Gold ETFs
Why This Matters
This shift reveals that Indian retail investors are increasingly prioritizing liquidity, tax efficiency, and zero storage costs over traditional physical gold. While cultural demand for bullion remains massive, financialized gold is rapidly becoming a mainstream portfolio diversifier.
Although physical bullion holds a major share of the total gold ownership in India, with more than 700 tons of gold demand in the retail segment every year, incremental investments have been moving toward Gold ETFs. They are more cost-effective, highly liquid, easy to invest in, and offer clear pricing, making them a popular investment choice for diversification.
