Skip to content

Invest & Trade Smarter with Fisdom App

Get a FREE Fisdom account for Stocks, Mutual Funds & more, all in one place

Download Fisdom app

How to invest in gold?

Written by - Akshatha Sajumon

January 10, 2021 6 minutes

If you are looking to invest in gold, there are many options available in India to invest in gold.

Read on to know more!

Various avenues for investing in gold

Digi Gold

Digi gold or Digital gold is purchased online in a non-physical (digital) form. It protects the downsides of buying physical gold. There are no issues relating to purity, no danger of theft, no extra costs for storage, and you can buy it right from your mobile. 

The Digi gold bought by investors is stored in insured vaults by the seller on behalf of the investors. Customers can buy digital gold from various mobile e-wallets, apps, or brokerage houses available in the country. Once the customer buys digital gold, the selling/ trading companies purchase an equivalent quantity of physical gold and store it under the investor’s name in the secured and insured vaults.

Advantages of Digi Gold

  • There is no doubt on purity as the prices reflected are that of 99.9 % purity
  • No design charges or making charges and no TDS deductions
  • No risk of theft or burglary
  • No extra storage costs

Disadvantages of Digi Gold

  • There is no official government-run regulating authority 
  • There is a limit of Rs. 2 lakhs investment on the majority of platforms
  • There is a limited storage period offered by most companies after that you have an option to sell the gold or take physical delivery

Physical Gold

 Indians love possessing gold in physical form. The traditional way to buy gold was to purchase it in the form of jewelry, coins, bars, etc. People prefer physical gold as they have sentimental value attached to it and it is also seen as a security for emergencies. 

Advantages of physical gold

  • No Demat account is required
  • No brokerage or management fee is levied
  • Little or no paperwork required for investing
  • Market fluctuations are directly proportional to the prices of gold
  • Can be used as collateral for loans

Disadvantages of physical gold

  • Risk of theft or burglary
  • Making charges increase the cost in the case of jewellery
  • There may be storage costs associated with physical gold
  • Risk of jewellery design being outdated
  • There is doubt on the purity of gold
  • Sale of jewellery doesn’t yield the true value of gold

Sovereign Gold Bonds (SGBs)

The Government of India has introduced the Sovereign Gold Bond (SGB) Scheme to provide investors with an alternative to investing in gold. Thus, SGBs are government securities and come under the debt category. The bond denomination is valued in grams of gold. The maturity duration of the gold bond is eight years, and interest at the rate of 2.5% on the nominal value is paid on an annual basis.  There is an option to exit the gold bond after the end of the fifth year. 

Interest earned on gold bonds is taxable as per the Income Tax Act. However, the redemption proceeds received after eight years are exempt from capital gain tax if the investor is an individual. No wonder Sovereign Gold Bonds are becoming popular amongst new age investors.

Advantages of Sovereign Gold Bonds

  • There is a sovereign guarantee on the redemption proceeds and, therefore, is risk-free.
  • Redemption proceeds are tax-free
  • Interest is earned on the bond’s nominal value
  • No risk of theft or burglary
  • SGBs are traded on an exchange, i.e. it can be bought and sold on the exchange and are, therefore, highly liquid
  • No design charges or making charges and no TDS deductions
  • SGBs are accepted as collateral against secured loans
  • There is no doubt on purity as the prices reflected are that of 99.9 % purity

Disadvantages of Sovereign Gold Bonds

  • Interest earned is taxable
  • There is a minimum lock-in period of 5 years
  • The minimum investment required is 1 gram of gold
  • There is a capital gain tax applicable if you redeem the bonds after 5 years and before the stipulated period of 8 years

Gold ETFs (Exchange Traded Fund)

Gold ETF is an Exchange Traded Fund is an instrument that invests in gold bullion and tracks the gold prices. It is a passive way of investing in gold which may be in a paper or a dematerialised form. Gold ETFs are listed and traded on both the exchanges, i.e. NSE and BSE, hence, can be bought and sold at market prices like any other stock. A Gold ETF gives the dual benefits of flexibility and simplicity of investing in gold.

Advantages of Gold ETFs

  • There is no fear of theft or burglary
  • No wealth tax, GST, and Security Transaction Tax is levied on ETFs
  • There are no making charges, hence, cost-effective
  • ETFs are listed on the stock exchange and are tradable, i.e. it can be bought and sold on the exchange and are highly liquid
  • There is no doubt on the purity
  • There are no storage costs
  • ETFs can be kept as collateral for obtaining secured loans
  • Pricing is done transparently as the price of the ETF is based on real-time gold prices

Disadvantages of Gold ETFs

  • There are brokerage charges involved when buying and selling a gold ETF
  • Some ETFs may not be liquid in which buying and selling is impacted
  • There may be Demat account and annual maintenance charges involved 
  • Gold ETFs are redeemed in cash equivalent and not in physical gold

Gold Mutual Funds

Gold mutual funds are another convenient way of investing in gold without purchasing it in physical form. Gold mutual funds are a category of mutual funds that invests in Gold ETFs, stocks of gold producing companies, physical gold, and/or stocks of gold mining companies.

The fluctuation in the prices of gold impacts the NAV (Net Asset Value) of the fund. Investment in gold funds is also done as a part of diversification or to get the right asset allocation. Individuals can divert their funds into gold funds if there is uncertainty in the markets. Investment in gold mutual funds not only gives exposure to gold as an asset but also the services of professional management.

Advantages of Gold Mutual Funds

  • No Demat account is needed
  • There is no fear of theft or burglary
  • There are no making charges, hence, cost-effective
  • There are no storage costs
  • The units allotted in the mutual fund scheme can be bought and sold anytime through the AMC managing that fund. Thus, it is highly liquid.
  • There are no brokerages or transaction fees

Disadvantages of Gold Mutual Funds

  • There are expenses involved in management and administration  on the investment made in gold mutual funds
  • The majority of Gold mutual fund schemes invest in Gold ETFs and charge a management fee, they are less cost-effective than Gold ETFs

Gold works well as a hedge against economic downturns, so it makes sense to include gold in your investment portfolio. You could invest anywhere between 5-15% of your portfolio in gold. The mode of gold investment should also depend on your need. 

Download one of India's best wealth management apps

Join more than one million investors and take control of your wealth

Download app