Best ways to invest in gold : A beginner's guide

Gold prices hit a remarkable milestone of Rs. 1,00,000 per 10 grams in April 2025.

This surge emphasizes the need to find the best gold investment strategies to achieve stability. Gold proves its worth as a "safe haven" during market volatility and shows negative correlation with stock markets. Central banks worldwide continue to boost their gold holdings.

The digital world has made gold investments available to everyone - seasoned investors and beginners alike. You can start with just Re. 1. Online platforms have reshaped how we invest in this precious metal through digital gold, ETFs, and Sovereign Gold Bonds (SGBs) that offer 2.5% interest rates.

Your investment portfolio should have at least 5% allocation to gold. This helps shield against market uncertainties. This piece will guide you through online gold investment options that align with your financial goals.

Start with Digital Gold: The Easiest Entry Point

Digital gold gives you a modern way to invest in gold without dealing with physical storage. You can start investing with just ₹1 on some platforms, making it perfect for newcomers.

What is digital gold and how it works

Digital gold represents ownership of 24-karat gold (99.9% pure) that authorized companies store in secure vaults. Your purchase of digital gold means an equivalent amount of physical gold sits safely in your name, supported by trusted providers like Pluto Money, MMTC-PAMP, SafeGold, and Augmont Gold.

The system works simply: you buy digital gold online, and the provider keeps your physical gold in secure, insured bank-grade vaults. Regular audits and certifications ensure transparency and accountability. Most platforms work with Brink's, a globally trusted secure storage provider.

Your digital gold value updates based on international gold rates, so you can see your investment value right away. Your account shows electronic ownership records that you can check anytime through your platform.

Pros and cons of digital gold investment

Advantages:

• Accessibility and affordability: Begin with just ₹1 to ₹100, based on your chosen platform.

• High purity: You get guaranteed 24K gold with 99.5% or higher purity.

• Security: Your gold stays safe in insured, monitored vaults with no risk of theft.

• Liquidity: You can sell anytime and get money in your bank account within 5-7 working days.

• Transparency: Prices reflect current market rates immediately.

• Flexibility: You can convert your investment to physical gold coins, bars, or jewelry.

Disadvantages:

• GST impact: A 3% GST applies on purchase that you can't get back while selling.

• Spread cost: Buy and sell price differences range from 3% to 6%.

• Storage limitations: You get free storage for 5 years, then pay nominal fees.

• Regulatory concerns: SEBI or RBI don't directly regulate this, unlike other gold investment options.

• Capital gains tax: Your short-term gains (held less than 36 months) get taxed as per income slab; long-term gains face 20.8% tax with indexation benefits.

How to buy and sell digital gold online

Buying digital gold:

Pick a reliable platform like Google Pay, PhonePe, Pluto Money, banking apps (HDFC, ICICI), or dedicated jewelry brand apps like Tanishq Digital Gold.
Here's what you need to do:

• Sign up on your chosen platform and complete KYC verification.

• Choose your investment amount (in rupees) or quantity (in grams).

• Pay using UPI, net banking, or other digital payment methods.

• Get your purchase confirmation with details of gold quantity.

Platforms lock prices for 5 minutes during transactions to protect you from market changes.

Selling digital gold:

Selling works just as easily:

• Open your account and click the sell option.

• Type in the amount or quantity you want to sell.

• Add your bank account details for payment.

• Confirm your sale.

The money reaches your verified bank account within 2 working days. You also have the option to turn your digital gold into physical form by paying making charges and delivery fees.

Digital gold serves as an exceptional starting point to broaden your investment portfolio, thanks to its low entry barrier and simple experience. This has made it a top choice among new investors looking to buy gold in India.

Explore Gold ETFs and Mutual Funds

Gold ETFs and mutual funds give you better structured investment opportunities with higher returns than digital gold. These investment options are now available to everyone and take care of common worries like storage, purity, and security.

Gold ETFs vs Gold Mutual Funds: Key differences

Gold Exchange Traded Funds (ETFs) let you passively invest by tracking domestic gold prices and investing in gold bullion. Each unit represents one gram of 99.5% pure gold backed by physical gold. Gold mutual funds work differently - they are funds of funds (FOF) that put money into Gold ETFs instead of physical gold.

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Gold ETFs let you trade instantly, while gold mutual funds give you systematic investment plans (SIPs) with lower entry points. ETFs show better returns because of lower expense ratios. The numbers speak for themselves - in 2024, ETFs earned 21.94% compared to 21.30% for gold funds.

How to invest in gold ETFs and mutual funds

Gold ETFs need you to:

• Open a demat and trading account with a broker

• Log into your trading platform

• Select the gold ETF (examples: SBI Gold ETF, HDFC Gold ETF)

• Place a buy order specifying quantity

• Complete the transaction

Gold Mutual Funds require you to:

• Choose a fund (like Axis Gold Fund, SBI Gold Fund)

• Register on the AMC website or through distributors

• Complete KYC verification

• Choose investment amount and frequency (lump sum or SIP)

• Set up payment method

Charges and tax rules you should know

The tax landscape changed recently. Starting July 23, 2024, you'll pay 12.5% long-term capital gains (LTCG) tax on gold ETFs and mutual funds without indexation benefits. This applies after holding ETFs for 12 months and mutual funds for 24 months. Short-term gains match your income tax slab.

Gold funds cost between 0.6-1.2% yearly, while ETFs cost 0.5-1%. Gold funds might charge 1-2% exit fees if you sell within a year. ETFs usually don't have exit fees.

Financial experts suggest putting 5-10% of your money in these gold investments to spread your risk effectively.

Understand Sovereign Gold Bonds (SGBs)

Sovereign Gold Bonds stand out from other gold investment options. The Reserve Bank of India issues them on behalf of the Government of India, making them one of the safest ways to invest in gold.

How SGBs work and where to buy them

SGBs are government securities that represent gold in grams and serve as an alternative to owning physical gold. Investors can buy these bonds with cash and redeem them in cash when they mature. Each bond equals one gram of gold and lasts for 8 years. You can purchase these bonds from banks, post offices, Stock Holding Corporation of India Limited (SHCIL), and authorized stock exchanges.

The bonds follow a straightforward pricing system. Their price depends on the simple average of 999 purity gold's closing price during the last three business days before the subscription period. Investors who apply online and pay digitally get a ₹50 discount per gram.

Interest income and tax benefits

SGBs are a great way to get returns beyond just gold's price appreciation. They pay a fixed interest rate of 2.50% yearly on the original investment amount, which investors receive twice a year.

These bonds come with excellent tax advantages. While the interest earned falls under your regular income tax bracket, you won't pay any capital gains tax if you hold the bonds until maturity. Selling bonds before maturity means long-term capital gains (after three years) are taxed at 20% with indexation benefits.

Why future SGB issues may be limited

The future looks uncertain for new SGB releases. No new tranches have emerged since FY 2024-25 began. The government finds this program costly—it has collected about ₹72,000 crore through 67 tranches since 2015 while paying roughly ₹3,500 crore in interest.

Rising gold prices have created significant challenges. The government has lost around ₹32,000 crore because SGBs are tied to gold prices. Adding capital gains tax waivers of about ₹3,200 crore, the government's total costs have reached nearly ₹38,700 crore.

The secondary market remains open for interested investors. But you should watch out for premium pricing and limited trading opportunities in these transactions.

Compare with Physical Gold and Jewelry

Traditional physical gold remains a popular investment choice for many Indians, even as digital alternatives continue to rise. Physical gold ownership blends cultural significance with a tangible asset that people can hold or wear, which provides both emotional and financial value.

Why physical gold is still popular

Indians favor physical gold for weddings, religious rituals, and special occasions. Most people prefer gold jewelry, coins, and bars they can touch over digital options. This preference comes from knowing how to use gold as both an adornment and an investment they can sell during financial emergencies. Physical gold also becomes an inheritance that moves through generations and keeps its cultural significance.

Hidden costs: making charges, GST, and storage

The purchase of physical gold comes with several costs beyond the metal's value:

• GST charges: 3% GST applies to gold's value, whatever it's 22-carat or 24-carat.

• Making charges: Jewelry comes with making charges from 3% to 25% of gold's value, plus 5% GST on these charges.

• Customs duty: The government reduced it from 15% to 6% (including 5% basic customs duty and 1% Agriculture Infrastructure Development Cess).

• Storage expenses: Bank lockers cost between ₹95 to ₹2,400 each year based on size, while home safes cost ₹30 to ₹3,000 depending on security features.

• Insurance costs: Homeowner's insurance policies usually limit gold coverage to ₹16,876, so specialized insurance becomes necessary.

• Security concerns: Buyers face risks of theft, damage, loss, or getting impure gold without proper verification.

When physical gold makes sense

Physical gold proves valuable in specific scenarios. It works best for cultural events and wedding traditions where jewelry serves both ceremonial and investment purposes. Banks and financial institutions accept it as collateral for gold loans, which helps during financial emergencies. People who want tangible assets under their direct control find traditional gold offers peace of mind that digital alternatives cannot match.

A balanced approach to gold investment often combines physical gold (10-15% of gold allocation) with more liquid gold investments to provide optimal flexibility and security.

Choose the Right Option for Your Goals

Your financial goals, risk tolerance, and investment timeline play a key role in choosing the right gold investment option. Each type of gold investment works best under specific conditions.

Short-term vs long-term investment needs

Gold ETFs provide the perfect mix of liquidity and budget-friendly options to meet short-term goals (under 2 years). These investments offer up-to-the-minute trading and lower expense ratios (0.5-1%), making them great for tactical investing. Digital gold suits small, short-term investments well, though returns might feel the pinch of a 3-6% buy-sell spread.

SGBs shine brightest as long-term investments (5+ years). The combination of 2.5% yearly interest and tax-free redemption at maturity creates exceptional value over time. Physical gold tends to give lower returns over extended periods because of making charges and storage costs. Yet it holds its cultural importance.

Liquidity, safety, and tax efficiency

Liquidity ranking (highest to lowest):

• Gold ETFs - tradable during market hours

• Digital gold - sellable anytime with 24-48 hour settlement

• Physical gold - needs a buyer

• SGBs - limited secondary market liquidity before maturity

SGBs come with government backing, which removes counterparty risk. Gold ETFs fall under SEBI's regulatory oversight that helps protect investors.

Tax benefits vary by a lot. SGBs lead the pack with tax-free gains when held until maturity. Other gold investments face a 12.5% long-term capital gains tax without indexation benefits after July 2024.

How much gold should be in your portfolio

Most financial experts suggest putting 10-15% of your portfolio in gold. This amount helps diversify while keeping exposure to non-income-generating assets in check.

Sprott Asset Management's suggestion includes 10% in physical gold and up to 5% in gold-related equities. Gold has proven its worth as a portfolio stabilizer during economic crises since 2007, with average returns of 16.94% compared to -7.24% for the S&P 500.

Your age matters when deciding how much gold to hold—you might want to increase your gold holdings as you get closer to retirement.

comparison of all gold options

Let's look at all gold investment options side by side to help you pick what works best for you. A complete comparison of all factors will help you make smart choices for your investment experience.

Comparison table of all the options

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SGBs stand out with their 2.5% yearly interest and potential price appreciation, plus tax-free gains at maturity. Digital gold makes it easy to start with just ₹1, though it lacks regulatory oversight.

Gold mutual funds work great for investors who want monthly SIPs without a demat account. Gold ETFs give you the best liquidity since you can trade them live during market hours.

Most financial experts suggest a balanced strategy. They recommend putting 5-10% of your portfolio in different gold options based on your timeline and goals. You might want to mix SGBs for long-term stability, gold ETFs when you need quick access to money, and maybe keep some physical gold for emergencies.

Conclusion

You have many ways to invest in gold based on your needs. Digital gold is available with just ₹1 as a starting investment, but it lacks strong regulation. Gold ETFs and mutual funds are well-laid-out investment options that come with SEBI protection. These work great for investors who want returns linked to market performance.

Sovereign Gold Bonds give you the best returns through 2.5% interest and tax-free gains at maturity, but their future looks uncertain. This is a big deal as it means that government losses of ₹38,700 crore make new SGB issues unlikely. Physical gold still holds cultural value but comes with extra costs like making charges, storage, and security risks.

Smart investors should spread their gold investments across several options. A balanced strategy puts 10-15% of your money in gold - ETFs for quick access to cash, existing SGBs for long-term benefits, and some physical gold for emergencies.

Note that each investment type has different tax rules. You pay no tax on mature SGBs but face 12.5% long-term capital gains tax on other options. On top of that, costs range from low ETF fees (0.5-1%) to high making charges on physical gold (3-25%).

Your gold investment success depends on picking options that match your goals, timeline, and risk comfort level. Stay updated about market conditions and rule changes.