Smart Gold Investing: Learn how to
invest in gold effectively

Gold has been a symbol of wealth since ancient times. It has managed to maintain its relevance as an investment even in this Information Age. In its physical form, currently, around 25,000 tonnes of Gold are available globally, out of which more than 60% (approx.) is in the form of jewellery. Gold coins and bars consist of approximately 10% to 15%.

Currently, investments are the second most common use of gold globally, making up 20% of all physical gold. Individuals own them as investments in the form of coins, bars, or as the underlying assets of digital gold, gold mutual funds, or exchange-traded funds.

Let’s understand the main gold investment choices that are now offered in India and compare them according to important factors like cost, liquidity, risk, return, and availability. Let's first talk about the relevance of gold investing in the modern world.

Reason to Invest in Gold:

The basic reasoning for investing in Gold is portfolio diversification, and in that respect, it is considered to be a suitable hedge against the possible volatility of equity investments as well as inflation.

Returns:

Gold Price Evolution in India in the last 20 years:

These figures reflect the steady climb in gold prices (₹/10 g) from ₹7,638 in 2005 to nearly ₹99,000 by mid‑2025.

In the last 20 years, only 3 times gold has delivered negative annual returns:

The fact that gold has traditionally shown lower volatility than equity investments over the long run is another important factor supporting its use as a hedge, in addition to the returns it offers.  Furthermore, it frequently shows an inverse relationship with stocks; that is, historically, gold returns have been high during periods of decline in equity markets.

Investment Options in Gold:

You can invest in gold digitally or physically.  When it comes to its physical form, gold can be invested in as jewellery, coins, or bars.  However, there are some drawbacks to purchasing actual gold:

• When we purchase physical gold, especially jewellery, it becomes expensive due to its making/designing charges
• There is a need to store it cautiously and securely in the locker; hence, storage expenses are applicable
• Selling Gold is inconvenient due to possible impurities and the requirement of origination and purity certificates. Further, there is a loss of GST.

To overcome the disadvantages of physical gold, you can buy gold in digital form, which includes investments such as Digital Gold, Gold ETFs, Gold Mutual Funds and Sovereign Gold Bonds. Let’s understand the same with a short description of each of these investment options:

1. Digital Gold can be purchased through different apps in denominations starting from 1 gram.
2. Gold ETFs are traded on stock exchanges just like shares.  
3. Gold Mutual Funds are managed by various Asset Management Companies (AMCs) that follow a fund-of-funds structure and primarily invest in Gold ETFs.
4. SGBs are periodically released by the Reserve Bank of India (RBI). These are available for purchase through leading public and private sector banks. However, the last tranche of Sovereign Gold Bonds (SGBs) issued by the government was in 2023-24. You can purchase the same through exchanges.

Please remember that the performance of all the above examples is linked to the Gold prices; there are significant differences between them in terms of risk, returns, liquidity, lock-in period, and taxation.

Let’s discuss these aspects of Gold investment options in detail, starting with risk.

Key Risks of Investing in Gold:

Minimum Investment Requirements

Comparison of Returns and Costs of Gold Investment Options

If you choose gold as an investment, the returns you get are inversely correlated with the cost of the investment; that is, lower costs result in larger returns, and vice versa.

 The rationale behind this is that the fundamental asset, which is the price of gold, is the same; a price rise would result in an appreciation of your investment, while a fall in price may result in a loss.  The expenses related to each investment are as follows:

The word "Spread" appears in the Digital Gold cost section. For the investor, this "Spread" represents the difference between the purchase and sale prices. In reality, purchasing Digital Gold costs about 6% more than the selling price that platforms that sell Digital Gold provide. This spread is used for recovering expenses related to actual gold, including those related to safe vault storage, technology, hedging, insurance, and shipping.

Since SGBs are a derivative product guaranteed by the Indian government and not backed by actual gold, they do not have any obvious costs.  But as was already indicated, the government hasn't issued any Sovereign Gold Bonds (SGBs) in the last two years.  However, you can purchase it through exchanges (from current investors rather than directly from the government).

Liquidity of Gold Investment Options

Liquidity in the context of investing usually relates to how quickly we can turn gold into cash.

• Buying and selling gold investments of all kinds is quite simple. As a result, they qualify as liquid investments.
• The current maturity period for SGBs is eight years. That being said, it is not always necessary to hold the investment until it matures. You have two choices if you wish to redeem before maturity.
  • You can prematurely encash the bonds after 5 years, i.e., after completion of the lock-in period. If you want to redeem investment before the completion of these 5 years, you can list and sell bonds in the secondary market. This can be done at any time after the completion of 6 months from the date of issue.
  • You can avail a loan against your bonds if you do not want a premature withdrawal.

Let’s understand the taxation of gold investment options.

Taxation of Gold Investment Options

Investments in gold are subject to taxes when they are sold or mature. Physical gold, digital gold, gold ETFs, and gold mutual funds are all subject to capital gains tax regulations. Either the short-term capital gains (STCG) or long-term capital gains (LTCG) laws may apply to your investment, depending on the holding period—that is, the interval between the acquisition and sale of your investments.

Income tax Rates:

Bottom Line:

After comparing all the risks, minimum investment requirements, returns, costs, liquidity, and taxation rules of different gold investment instruments in India, the following are our key takeaways:

Sovereign gold bonds are a suitable choice if you plan to stay invested for an extended period (5+ years). But you will have to buy it from the secondary market, and liquidity may be low. Top of Form

However, Gold Mutual Funds and Gold ETFs are a good option for medium-term or even in the long term as they have high liquidity and convenience for investing.

Please consult your financial advisor before investing.