Best Gold Investment Options in India | A comparison

Alternate ways to invest in gold

We (Indians) love the yellow metal (gold). India’s love affair with gold has been since ages. From times immemorial, gold has been seen as a safe investment, especially when there is an economic crisis. Gold has been preferred by governments also, as a collateral against any crisis.

In fiscal year 2022, India was estimated to import more than 3.4 trillion Indian rupees worth of gold. This represented an increase of roughly 35 percent compared to the previous year, when Indian gold imports stood at over 2.5 trillion rupees.

Though the financial inclusion and banking services have become widespread even in small towns and rural areas, Gold still remains one of the best investment options with the rural population. Rural India’s gold demand is around 55% to 60% over the last few years.

The middle class is the primary gold consumer in India and prefer to buy Gold in jewelry form. The buying pattern of Gold is slowly changing with the Urban population and younger generation, thanks to the availability of various alternative ways of buying gold (Gold ETFs, Digital Gold, Sovereign Gold Bond Schemes etc.,)

Even though the scale and value of UPI transactions are skyrocketing in the country, a new report by the World Gold Council notes that “cash remains the preferred means of making a purchase, accounting for some 50 to 60 per cent in metros and large cities, and 70 to 80 per cent across the rest of India, in terms of value.” It, however, doesn’t fail to acknowledge an increase in digital transactions

In this post let’s understand – What are the best gold investment options available in India? Comparison of alternate ways of buying gold in India..

Comparison of Gold Investment Options in India

Below are the different ways through which one can buy Gold in India;

  • In Physical Form
    • Gold Bars
    • Gold Coins
    • Gold Jewelry
  • In Paper Form
    • Gold Exchange Traded Funds (ETFs)
    • Gold Mutual Funds
    • Sovereing Gold Bond Schemes
  • Digital Gold

Digital gold is a new age version of buying gold through online channels. It is a virtual method of buying and investing in the yellow metal without having to physically hold the gold, for a specified period. The minimum value of the gold you can purchase through some of the mobile wallet apps (like Google pay or Paytm) is as low as Re 1 to Rs 10. Please note that Digital gold falls in an undefined grey zone when it comes to regulation.

Physical Gold

Purchasing physical gold in the form of gold bars, coins, or jewellery is a traditional way of investing. It requires secure storage and incurs additional costs, such as making charges and purity testing.

  • Key Risk : Difficult to store and safeguard, as it can be easily stolen.
  • Easy of Buying : Can buy very easily by visiting a gold jewelry store located near to you. You can also buy gold coin or bars from a banking institution.
  • Minimum Investment : You can buy 1 gm of gold.
  • Expenses : Making charges, wastage and storage charges
  • Liquidity : Can be bought and sold quite easily.
  • Taxation :
    • Capital Gains Holding Period :  If the gold is being sold within three years from the date of your purchase then it is considered as short-term, while gold sold after three years is considered as long term.
    • Capital Gains & Gold Tax Rates : Short-term capital gains on sale of gold is added to your gross total income and taxed at the income tax rates applicable to your income slab. Whereas, the long-terms gains are taxed 20.8% (including cess) with indexation benefits.
    • TDS Rate : TDS rate is not applicable on selling of Gold. However, buying jewellery over Rs 2 lakh in cash will attract 1% TDS.
    • GST Rate : On gold jewelry purchase, you are charged Goods and Service Tax (GST) at 3% on the value of gold plus making charges, if any.

Below are the best alternative ways of investing in Gold in India and their comparison on various factors;

5 best alternate ways to buy and invest in gold in india
5 best alternate ways to buy Gold
FactorsGold ETFsGold MFsSovereign Gold BondsDigital Gold
ExpensesBrokerage fees & Demat chargesFund Management Charges of the AMCNilDelivery Charges
LiquidityEasily liquidable, as it can be sold on the stock exchangeCan be redeemed easilyLow (lack of liquidity. 5 year lock-in)Can be redeemed easily
SafetySafe, as it is issued by recognized AMCsSafe, as it is issued by recognized AMCsVery Safe, as it is issued by the GovernmentStored in Vaults by Sellers
Ease of PurchaseDepends on the number of units available for sale in the marketCan be easily purchased through lump sum purchase or SIPsLimited timeframe available for purchase, depending on the issue timeframe set by the Government.24X7 from anywhere
Buyer ProtectionGoverned by SEBI regulationsGoverned by SEBI regulationsVery safe, as it is issued by the Government (RBI)No Regulatory mechanism yet
StorageHeld in demat formHeld as MF unitsCan be held in the Demat form or physical formStored in Vaults by Sellers for a specified period only
Tax on STCGAs per IT Slab RatesAs per IT Slab RatesAs per IT Slab RatesAs per IT Slab Rates
Tax on LTCG20% (with indexation)20% (with indexation)3 to 8 years, 20% (with indexation) &
Nil if held till maturity
20% (with indexation)
TDSNil (for Resident Indians)Nil (for Resident Indians)NilNil
ReturnsProportional to the returns on GoldProportional to the returns on Gold & related securitiesProportional to the returns on Gold.
Interest is payable.
Proportional to the returns on Gold (minus Spread)
STCG is Short Term Capital Gains < 3 years, LTCG -Long Term Capital Gains > 3 years, GST – Goods & Services Tax & TDS – Tax Deducted at Source

There is one more way of investing rather trading in Gold i.e., Gold futures and options. These are derivatives contracts that enable traders to speculate on the future price movements of gold without owning the physical metal. Here’s a brief explanation of each:

  • Gold Futures: Gold futures contracts represent an agreement to sell or buy a particular amount of gold at a set price and future date. Futures trading allows for leveraged trading, meaning traders can control a larger amount of gold with a smaller initial investment.
  • Gold Options: Gold options give traders the right, but not the obligation, to sell or buy gold at a specified price within a predetermined timeframe. Options provide flexibility and allow traders to profit from rising and falling gold prices.

Both gold futures and options are traded on regulated exchanges and involve a certain level of risk. Understanding these derivatives thoroughly and assessing your risk appetite before participating in such trading activities is crucial.

Conclusion :

Whether physical Gold adds value to your investment portfolio or not, majority of us still prefer accumulating gold in physical form only. Most of the gold held by us, are in the form of jewelry. Jewelry, being easy to adorn and display, creates a sense of well-being and provides a sense of security, that a physical asset can provide. 

For short term, you can consider Gold ETFs and Gold mutual funds. For long-term, can have a look at Gold Bonds.

If you decide to make gold as part of your investment portfolio and looking for an alternate way to invest, you can consider above mentioned pros and cons of different ways of buying gold, and then can take an informed investment decision.

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(Post published on : 08-Aug-2023)

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