New Delhi: The recent increase in gold import duty to 15 per cent is likely to strengthen the case for financial gold products such as Gold ETFs, Gold Mutual Funds and Gold Trading Receipts (GTRs), according to Satish Dondapati, ETF Fund Manager at Kotak Mutual Fund.
Dondapati said the duty hike has already pushed up domestic gold prices, resulting in higher net asset values (NAVs) for Gold ETFs and Gold Funds. He added that the move aligns with the government’s objective of moderating physical gold consumption and encouraging investors to shift towards finan-cial forms of gold ownership.
A greater preference for Gold ETFs and GTRs over jewellery and coins could also help reduce pressure on India’s current account deficit and foreign exchange reserves over time. India imports around 800 tonnes of gold annually, with nearly 70 per cent used for jewellery, 28 per cent for investments and the remainder for industrial purposes. Increasing adoption of financial gold products could help chan-nel savings into less import-intensive investment avenues, he said.
Explaining the difference between GTRs and Gold ETFs, Dondapati noted that both provide exposure to gold prices without requiring physical possession and are backed by gold held in regulated vaults. However, Gold ETFs generally offer greater liquidity and broader investor participation, while taxation may vary depending on regulatory treatment and holding period.
On the outlook for gold, he said the precious metal is likely to remain well supported over the next 12 months if geopolitical tensions persist, the rupee remains weak and global growth slows. Gold typically benefits from safe-haven demand during periods of uncertainty, while a weaker rupee boosts domes-tic prices by making imports more expensive.
Although a weaker rupee supports returns for Indian investors, Dondapati said US bond yields and Federal Reserve policy are likely to exert a greater influence on global gold prices.
Given elevated equity valuations and rising geopolitical risks, he recommended allocating 10-15 per cent of a diversified portfolio to gold. However, he advised investors to build exposure gradually through staggered investments rather than lump-sum allocations, in line with their asset allocation goals and investment
horizon.
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