Mumbai: A fall in gold prices due to customs duty cuts, long-term tax efficiency after the budget announcement and likely withdrawal of new issues of Sovereign Gold Bonds (SGBs) are pushing investors towards gold ETFs or gold mutual funds. Financial planners believe investors should invest at least 10% in gold and say the recent fall in prices presents a buying opportunity for those who do not already own gold.

Following the government’s announcement of a duty cut in the recent budget, the domestic price of gold fell by 6% to Rs 69,100 per 10 grams. Over the last one year, gold has given a return of 21.10%.

“For investors who have not yet invested in gold, the tax cut will provide an opportunity to invest at significantly lower gold prices in the fall,” says Chirag Mehta, Chief Investment Officer at Quantum Mutual Fund. Another benefit of the Budget announcement is the reduction in the long-term tax burden, which will drop from the investor’s tax bracket to 12.5% ​​after a holding period of two years. “This is a significant benefit from a tax perspective and should be beneficial to investors in addition to the other benefits offered by gold ETFs,” adds Mehta.

Analysts believe that gold contributes to portfolio diversification, serves as a hedge against inflation and investors should therefore hold 5-10% gold in their portfolios.

“Market uncertainty due to the US elections and the Fed’s stance are supportive factors for gold as we may see inflows into gold funds. A rate cut scenario could boost investments in gold funds,” says Tapan Patel, fund manager at Tata Asset Management.Analysts also believe that strong economic stimulus from China could boost investment demand for gold.Until now, asset managers preferred gold-denominated government bonds as the government paid 2.5% extra interest every year, there was no expense ratio and capital gains were tax-free at maturity. However, the last primary issue of gold-denominated government bonds was in March 2024 and there was no announcement of new issues this year, while the existing series of these bonds is trading at a premium of 10-12% in the secondary markets. “It is not clear whether there will be new issues of gold-denominated government bonds.

For investors who want to buy their gold reserves, buying a gold ETF or gold mutual fund makes more sense,” says Nikhil Gupta, founder of Sage Capital.