Gold ETFs popularity: Will govt bring in separate rates for physical gold, ETFs? Here's what we know

The steep rise in gold prices over the past year has deepened the financial strain on Indian households, particularly the middle class, for whom buying gold during weddings and festivals is a long-cherished tradition. With prices touching new highs, concerns about affordability have become widespread, prompting parliamentary debate on whether different rules should govern physical gold and gold-based investment products like Exchange Traded Funds (ETFs).

The matter came up in the Rajya Sabha, where MP Ramji Lal Suman urged the government to consider setting “separate rates or rules” for physical gold and ETFs. His contention was that buyers of physical gold, especially ordinary families, should be shielded from the steep fluctuations in international prices that drive up local market costs.

Responding to the query, Minister of State for Finance Pankaj Chaudhary made it clear that such a distinction is not possible. “The price of Gold ETFs is directly linked to physical gold. By regulation, these ETFs are mandated to invest in physical gold or exchange-traded derivatives. Therefore, any change in the price of physical gold is automatically reflected in the ETF. Both move in tandem, and setting separate rates is not feasible,” he said.

The minister’s clarification underscores the financial reality that gold in any form—whether as coins and jewelry or as digital instruments—derives its value from the same source: the global bullion market. With India being one of the world’s largest gold consumers, local buyers remain highly exposed to global price swings.

Rising popularity of Gold ETFs

Interestingly, while physical buyers are grappling with affordability, digital gold investments are surging. India’s gold ETF holdings rose 42% year-on-year to 66.68 tonnes as of June 30, 2025, while the assets under management (AUM) almost doubled, rising 88% to ₹64,777 crore. The number of investor accounts has also jumped 41% to 76.54 lakh, signaling a structural shift in investment preferences.

Analysts attribute this boom to younger investors, particularly Gen Z, who are turning away from traditional jewelry purchases toward digital platforms. Fractional ownership, the convenience of online trading, and fintech-driven innovations are making gold ETFs a preferred route. According to a Ventura report, social media trends have also played a major role in popularizing digital gold as an “asset of the future.”

Global context

The Indian trend mirrors global movements. Worldwide, gold demand in Q2 2025 touched 1,249 tonnes, up 3% year-on-year, largely driven by investment demand and ETF inflows. Central banks, too, continue to add to their reserves, with total holdings rising to 36,345 tonnes. India’s own reserves stand at 880 tonnes, cementing gold’s role as a key strategic asset.

Physical Gold vs. ETFs

Despite the rise of ETFs, physical gold continues to dominate Indian households. Traditionally bought as jewelry, coins, or bars, it carries cultural significance unmatched by digital formats. Yet, the costs of making charges, storage, and security make ETFs more efficient. Importantly, both move in the same direction since ETF values are pegged to physical gold.

Over the past two decades, gold has offered positive returns in 14 of 20 years, averaging 23% annually in the last three years—far outpacing the Nifty 50’s 11%. Its negative correlation with equities also provides a hedge in volatile markets, cushioning portfolios during downturns.

While Minister Pankaj Chaudhary has ruled out separate pricing mechanisms, the ongoing debate highlights India’s dual relationship with gold—as a cultural symbol and as a modern financial instrument. For millions of families, affordability remains a pressing concern, even as ETFs open new pathways for investment.

As the minister emphasized, “Gold ETFs and physical gold are inseparable in pricing. When the value of one changes, the other must follow. There cannot be separate rules for the two.” This clarity may not ease the financial burden of rising prices, but it reflects the reality of a global market where India’s love for gold meets the hard economics of supply and demand.