I am planning to invest in gold funds. How will it be taxed?

If I invest in gold funds or ETFs now, how will I be taxed? - Anonymous

The taxation depends on the type of gold product you invest in—either a gold fund of funds (FoF) or a gold exchange-traded fund (ETF). Here's a breakdown of how each is taxed:

Gold FoFs

Gold FoFs are mutual funds that invest in units of gold ETFs. They operate like regular mutual funds, allowing investors to start with smaller amounts and even opt for a systematic investment plan (SIP) for disciplined investing.

• If held for more than two years: Gains qualify as long-term capital gains (LTCG) and will be taxed at 12.5 per cent.
• If sold within two years: Gains will be treated as short-term capital gains (STCG) and taxed according to your income tax slab rate.

Gold ETFs

Gold ETFs, unlike FoFs, are traded on the stock exchange just like shares, allowing investors to buy and sell them in real time at market prices.

• If held for more than one year: Gains are classified as LTCG and taxed at 12.5 per cent.
  
• If sold within one year: Gains will be considered STCG and taxed as per your income tax slab rate.

Which is a better option?

Gold ETFs typically offer lower expense ratios, making them more cost-effective. However, they require both a demat and trading account. Gold FoFs provide a more convenient alternative for investors without these accounts, though they may have slightly higher costs.

Also read: Is NPS's extra Rs 50,000 tax deduction available under new tax regime?

This article was originally published on January 28, 2025.