What are the Different Ways to Invest in Gold in India?
Gold has been India's favorite investment for centuries. But modern investors now have multiple ways to own gold beyond traditional jewelry. From government-backed bonds to digital gold, each option has its own advantages and limitations. Let's explore all the ways you can invest in gold in India.
Why Invest in Gold?
- Hedge against inflation - Gold typically maintains purchasing power over time
- Portfolio diversification - Low correlation with equity markets
- Safe haven - Performs well during economic uncertainty
- Liquidity - Can be converted to cash relatively easily
- Cultural significance - Important for Indian weddings and festivals
1. Sovereign Gold Bonds (SGBs)
Sovereign Gold Bonds are government securities issued by the Reserve Bank of India (RBI) as an alternative to physical gold. They're considered the best way to invest in gold for long-term investors.
Key Features
| Feature | Details |
|---|---|
| Interest Rate | 2.5% per annum (paid semi-annually) |
| Tenure | 8 years (exit after 5th year allowed) |
| Minimum Investment | 1 gram of gold |
| Maximum Investment | 4 kg per individual/HUF per year |
| Digital Discount | Rs 50 per gram for online purchase |
Why SGBs Stand Out
- Tax-free capital gains at maturity - The biggest advantage over all other gold investments
- Additional 2.5% interest - No other gold investment pays interest
- Government-backed - Zero default risk
- No storage concerns - Held in demat form
Important Update (2025-26)
No new SGB tranches have been announced for FY 2025-26. However, investors can purchase previously issued SGBs on NSE/BSE through the secondary market. Search for "SGB" + series name (e.g., SGBSEP28) on your trading platform.
2. Gold ETFs (Exchange Traded Funds)
Gold ETFs are mutual funds that invest in physical gold. One unit of a Gold ETF is typically backed by one gram of physical gold with 99.5% purity.
Key Features
| Feature | Details |
|---|---|
| Expense Ratio | 0.5-1% per annum |
| Liquidity | High (traded on NSE/BSE) |
| Minimum Investment | 1 unit (approx. 1 gram) |
| Demat Required | Yes |
| Regulation | SEBI regulated |
Gold ETF Taxation (Post April 2025)
- STCG (held less than 12 months) - Taxed as per income slab
- LTCG (held more than 12 months) - 12.5% without indexation
3. Digital Gold
Digital gold allows you to buy gold online through apps, brokers, and payment platforms. Your purchase is backed by physical gold stored in secure vaults.
Key Features
| Feature | Details |
|---|---|
| Minimum Investment | As low as Rs 1 |
| Storage | In insured vaults |
| Liquidity | 24/7 buy/sell |
| Maximum Limit | Rs 2 lakh per PAN (on many platforms) |
Caution
SEBI's November 2025 public caution notes that many digital gold products are not regulated as securities under SEBI's framework. This means investor protection mechanisms may not apply the same way as with Gold ETFs or SGBs. Choose platforms backed by reputable companies.
4. Physical Gold
The traditional way - buying gold coins, bars, or jewelry from jewelers or banks.
Considerations
- Making charges - Jewelry includes 8-25% making charges that you lose on resale
- Storage risk - Need secure storage (locker fees apply)
- Purity concerns - Always buy BIS hallmarked gold
- Liquidity - Easy to sell but may face price negotiations
When Physical Gold Makes Sense
- For actual use (jewelry for weddings, etc.)
- If you don't trust digital/paper investments
- For gifting purposes
5. Gold Mutual Funds
These are Fund of Funds (FoFs) that invest in Gold ETFs. You don't need a demat account, and you can invest via SIP.
Key Features
- No demat needed - Accessible like regular mutual funds
- SIP available - Systematic investment possible
- Higher expense ratio - Double layer of costs (FoF + underlying ETF)
Comparison: All Gold Investment Options
| Option | Interest | Tax on Gains | Liquidity | Best For |
|---|---|---|---|---|
| SGBs | 2.5% p.a. | Tax-free at maturity | Limited (5-year lock-in) | Long-term investors |
| Gold ETFs | None | 12.5% LTCG | High | Active traders |
| Digital Gold | None | As per slab/LTCG | Very High | Small investors, beginners |
| Physical Gold | None | As per slab/LTCG | Moderate | Personal use, gifts |
How Much Gold Should You Own?
Financial advisors typically recommend allocating 5-15% of your portfolio to gold as a diversification tool. The exact percentage depends on:
- Your age and risk profile
- Existing asset allocation
- Market conditions
- Personal preference and cultural factors
The Smart Gold Investment Strategy
- For long-term (5+ years) - Buy SGBs when available or from secondary market
- For medium-term (1-5 years) - Gold ETFs offer good liquidity and regulated safety
- For short-term or small amounts - Digital gold for convenience
- For personal use - Physical gold/jewelry (account for making charges)
Leverage Your Gold Investments
Did you know you can get liquidity from your gold holdings without selling them? While gold loans against physical gold are common, if you have investments in Gold ETFs or gold-focused mutual funds, DhanLAP can help.
Our Loan Against Mutual Funds (LAMF) service allows you to:
- Access funds without selling - Keep your gold exposure intact
- Continue earning returns - Your investment keeps working
- Quick processing - Often same-day disbursement
- Competitive interest rates - Lower than personal loans
Final Thoughts
Gold remains an important component of a well-diversified Indian portfolio. For pure investment purposes, Sovereign Gold Bonds offer the best combination of returns (gold appreciation + 2.5% interest) and tax efficiency (tax-free at maturity). Gold ETFs are ideal for those needing liquidity, while digital gold works well for beginners with small amounts.
Remember, gold is a wealth preservation tool, not a wealth creation tool. It should complement your equity and debt investments, not replace them.
