Indians have always trusted gold. It sits at weddings, backs loans in a crisis, and passes across generations in ways that bank balances do not. But the ways to invest in it have changed completely in the last decade. You no longer have to buy jewellery or bars from the local jeweller to hold gold. There are now at least four distinct routes, and they work very differently as investments.
This guide compares Sovereign Gold Bonds, Gold ETFs, digital gold, and physical gold across the things that matter: returns, tax, safety, liquidity, and cost. By the end, you will know exactly which one suits your situation.
Sovereign Gold Bonds
Sovereign Gold Bonds, or SGBs, are issued by the Reserve Bank of India on behalf of the government. When you buy one, you are lending the government money that is linked to the price of gold rather than to an interest rate. The key features that make SGBs the best option for most long-term gold investors are hard to beat.
You earn a fixed interest of 2.5% per annum on your initial investment, paid every six months directly to your bank account. This interest is taxable, but the capital gains when you sell or when the bond matures are completely tax-free if you hold until maturity of 8 years. You can also exit after 5 years on interest payment dates. The bonds are issued in demat form, so there is no storage risk. And unlike physical gold, there is no making charge, no GST, and no purity question.
There is one catch: SGB issuance has effectively stopped since 2024. The government did not announce a new tranche in the 2024-25 or 2025-26 financial years. If you hold existing SGBs, keep them until maturity — the tax-free capital gain is too valuable to give up early. If you are a new investor looking for alternatives, you will need to choose among the options below.
Gold ETFs
Gold Exchange Traded Funds are mutual fund units that track the price of gold. Each unit represents a tiny fraction of a gram of gold, and the fund holds physical gold in vaults on your behalf.
Gold ETFs trade on stock exchanges just like equity shares. You can buy and sell them anytime during market hours through your regular demat and trading account on Zerodha, Groww, or any other broker. The expense ratio, which is the annual fee the fund charges, ranges from 0.5% to 1% depending on the fund. This is higher than an index fund but still far cheaper than the costs of buying physical gold.
On tax: if you hold a Gold ETF for more than 3 years, gains are taxed at 20% with indexation benefit. If you sell within 3 years, gains are added to your income and taxed at your slab rate. This is less tax-efficient than SGBs, which are completely tax-free on maturity, but still reasonable.
Gold ETFs are a good option if you already have a demat account and want the ability to sell in small quantities at any time. The main downsides are the expense ratio that eats into returns and the lack of any interest income that SGBs provide.
Digital Gold
Digital gold is sold by private players like MMTC-PAMP through apps like Groww, Paytm Money, PhonePe, and Google Pay. You can buy as little as Re 1 worth of gold, and it is stored in insured vaults. The concept is simple: pay via UPI, own a fraction of a gram, and sell back whenever you want.
The convenience is unmatched. But the costs are higher than they appear. The buy-sell spread on digital gold typically runs 2 to 3% — meaning you lose that much the moment you purchase. There is also an annual storage fee of roughly 1 to 2% that most platforms deduct. Unlike SGBs or ETFs, there is no interest, no dividend, and no tax advantage. Capital gains on digital gold are taxed exactly like physical gold: long-term capital gains at 20% with indexation after 3 years.
Digital gold works well for small, regular amounts — say a few hundred rupees a month as a savings habit. But the spread and storage costs make it an expensive option for large sums. Use it for convenience, not for serious investment.
Physical Gold: Jewellery, Coins, and Bars
Physical gold is what most Indians still instinctively think of when they hear the word “gold.” Jewellery, in particular, is deeply tied to cultural events. But as a pure investment, it has the highest costs and the lowest returns.
Let us count the costs. Making charges on jewellery range from 6% to 20% depending on the design. GST of 3% applies on the full purchase price. When you sell, the jeweller deducts 3% to 5% as wastage and making loss. A typical piece of jewellery needs the gold price to rise 15% to 20% before you break even. Coins and bars from reputed sellers like MMTC-PAMP or SBI have lower making charges, around 2% to 5%, but still carry a buy-sell spread of roughly 3%.
There is also the matter of purity. Even with BIS hallmarking now mandatory, the resale process is not as simple as selling an ETF. You need to find a buyer and negotiate. And storage — a bank locker costs roughly Rs 1,000 to Rs 3,000 per year depending on the city.
Physical gold is not an investment in any practical sense. It is a store of cultural and emotional value that happens to rise in price over time. If you are buying gold solely to grow your wealth, the other options are strictly better.
Which One Should You Pick?
If you hold existing SGBs, do not sell them early. The 2.5% interest plus tax-free capital gains make them the best gold investment product India has ever created.
If you are buying fresh and you have a demat account, go with a Gold ETF. It offers the lowest cost among currently available options, full liquidity, and no counterparty risk beyond that of the fund itself. The tax treatment at 20% with indexation is reasonable for a long-term holding.
If you want to buy small amounts regularly as a digital savings habit, digital gold is acceptable for its convenience. But be aware that the spread and storage costs mean you will need a larger price rise to generate the same return as an ETF.
If you are buying for a wedding or a festival, that is jewellery, not investment. Buy it for the occasion, mentally write off the making charges, and do not count it as part of your financial portfolio.
How Much Gold Should You Hold?
Most financial planners recommend keeping gold at 5% to 10% of your total investment portfolio. Gold acts as a hedge against equity market downturns and currency depreciation. It does not produce income like dividends or interest, and its long-term returns have historically been lower than equity. But it reduces the overall volatility of your portfolio, and in a crisis, gold has often held its value when stocks have dropped.
A reasonable allocation for a balanced Indian portfolio would be roughly 10% in gold, 60% in equity mutual funds or index funds, 20% in fixed income like PPF or debt funds, and 10% in cash or liquid funds. Use our [PPF calculator](/calculators/ppf) to see how the fixed-income portion grows, and our [SIP calculator](/calculators/sip) to plan your equity investments alongside.
The Bottom Line on Gold in India
Gold has a role in every Indian portfolio, but the way you buy it matters enormously to your returns. SGBs (if you can find them) are the best option. Gold ETFs are the best currently available option for new investors. Digital gold is for convenience and small amounts. Physical jewellery is for wearing, not for wealth-building. Choose accordingly, and your portfolio will thank you over the next decade.