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Different options to invest in gold in India

01 Sep 2022 0 COMMENT

Almost everyone in India must be aware of how intrinsically valuable gold is. Apart from cultural importance, gold proves itself to be a solid investment which can yield good returns especially in times of economic turmoil. In this article, we will try to understand the different options to invest in gold in India.

Let’s start by understanding why one should invest in gold.

Gold as an investment

Gold offers all the things a particularly risk-averse investor may look for in an investment, namely, liquidity, safety and ease of transaction on top of decent returns. One more factor which makes gold a rather favourable instrument is its ability to beat inflation. Generally, gold returns in the long run have been in line with inflation rates. On top of this, gold also tends to have an inverse relationship with equity investments. Usually, when the equity markets start going through a down turn, gold tends to perform well in comparison. Gold is also considered as a portfolio diversification tool which helps in managing the overall volatility associated with a portfolio.  

Different instruments to invest in gold

Let’s now go through different types of gold investments, namely, physical gold, Gold ETFs, Gold funds, Sovereign gold bonds and gold futures listed on the commodity exchange.

Physical gold

Physical gold is one of the best suited investment vehicles for conventional investors, neither does it require a demat account nor does it require paperwork but you need to pay making charges.  However, market fluctuations directly impact the prices of gold and there always is a risk of purity and theft which is associated with physically storing gold.

Gold ETFs

Gold ETFs, which stands for Gold Exchange Traded Funds and they can stand in as a substitute for physical gold. Gold ETFs let investors stay invested in gold without actually having to own physical gold. Gold ETFs are exchange traded funds with their underlying asset being gold, with one unit of a gold ETF being equivalent to one gram of gold or even in some cases one tenth of one gram gold. Investing in gold ETFs requires a demat account and comes with nominal additional charges like fund management charges. One should remember that any fluctuations in the market price of gold impacts the price of the gold ETF directly, and this product is best suited for investors who look for convenience without worrying about purity and storage concerns.

Gold funds

By investing in gold funds, an investor can get exposure in gold via mutual funds. They are a type of open-ended mutual funds which invest directly or indirectly in gold through gold ETFs. Gold funds do not require the demat and even one can start a SIP of Rs. 500.

Sovereign gold bonds

Sovereign gold bonds or SGBs are government backed securities denominated in grams of gold and are issued by the RBI on behalf of the Government of India. Investors pay the issue price in cash and the bonds are redeemed in cash on maturity. SGBs provide a potentially superior form of investment as compared to physically holding gold as the risks and costs associated with storing the gold are eliminated and the quantity of gold for which the investor has paid is protected and they receive the ongoing market price at the time of redemption and an annual interest of 2.5% on invested value. By investing in SGBs, investors also don’t need to worry about making charges and purity concerns as is the case for physical gold, and as SGBs are held in demat form. One should also remember that SGBs are not risk-free and are prone to capital loss if the market price of gold declines. SGBs have a maturity of 8 years and premature withdrawal is allowed after 5 years.

Gold Futures

Another way of diversifying one’s portfolio into gold is by investing in gold futures. Gold futures are essentially contracts between two parties to exchange gold at a pre-decided date and price in the future. In India, gold futures are traded on various exchanges like MCX, NSE, etc. A futures contract is usually made between two parties having opposing views on the price of gold, with one party expecting the price to rise in the coming future and the other party expecting the price to decline. This is a good way to invest for the short term without paying the total amount. Moreover, due to the leverage offered in the futures contracts, there is a potential of a higher return on investment with an increase in risk.

Taxation on gold investment

Let’s now discuss about the tax liabilities associated with investing in gold.

The tax liability on gold investments changes on the basis of different investment vehicles chosen by investors. When it comes to buying physical gold, purchase of gold is charged at 3% GST along with making charges if any. The income arising from the sale of gold falls under capital gains and is taxed based upon the holding period of gold. If the holding period of gold is less than 3 years, then the income is classified as short-term capital gains and is charged according to the applicable tax slab the investor falls in. When the holding period is more than 3 years, then the gains are treated as long-term capital gains and are taxed at 20% with indexation benefits along with any applicable surcharge and cess.

Similar is the case with the income arising out of the sale of the units of gold ETFs with short-term capital gains being taxed according to the tax slab and long-term capital gains being taxed at 20% along with indexation benefits.

The interest earned by investors who invest in SGBs is classified as income from other sources. In addition to this, SGBs sold on stock exchanges before a holding period of 3 years are classified as long-term capital gains being taxed at 20% with indexation benefits. One should also note that the returns acquired by one after 8 years of staying invested in SGBs are exempt from tax.


In conclusion, we can say that gold is a solid investment vehicle for diversification of one’s portfolio owing to how it can help offset some volatility in economic turbulent times and also provide significant liquidity and ease of transaction.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: complianceofficer@icicisecurities.com. Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The securities quoted are exemplary and are not recommendatory. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.