The 2024 Budget has reshaped the investment landscape, making exchange-traded funds (ETFs) significantly more attractive compared to funds of funds (FoFs). With changes in tax treatments for gold, silver, and overseas investments, ETFs now offer a compelling advantage due to their shorter holding periods and trading flexibility.
Previously, investments in ETFs and FoFs faced distinct tax rules, but the new regulations have streamlined these, creating a more favourable environment for ETFs. This shift not only reduces the time needed to benefit from long-term capital gains (LTCG), but also enhances trading convenience, positioning ETFs as the preferred choice for savvy investors looking to optimise their portfolios.
ETFs are bought and sold via stock exchanges and held in demat accounts. In contrast, FoFs are held in statement of account form (with registrar and transfer agents, or RTAs) and are bought directly from asset management companies (AMCs) and redeemed directly with AMCs.
ETFs: Before April 1, 2023, investments in gold, silver and overseas ETFs were subject to LTCG tax if held for more than 36 months—taxed at 20% with indexation benefits. Short-term capital gains (STCG) for these ETFs were taxed at the investor's applicable income tax rate.
FoFs: Commodity (gold and silver) and overseas funds followed similar tax rules but were classified differently.
The 2023 Budget had redefined the tax treatment and holding periods for these investment vehicles, making them taxable at the slab rate. It had grandfathered investments made before April 2023, allowing them to enjoy the benefits of 20% with indexation.
However, the Budget for 2024-25 made another change. For redemptions made after 31 March 2025, the holding period
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