What’s the best way to invest in gold?

Did you know, India is the second-largest consumer of gold globally?

Gold is a timeless investment, but the way you invest in it matters. Each has its own costs, risks, and benefits—some help you build long-term wealth, while others offer convenience.

Let’s break them down and see what works the best for you—

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Physical Gold

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It refers to gold coins, bars, jewellery or any other physical form of gold available with jewellers.

Investing in physical gold is a popular choice in India, offering tangible value and cultural significance.

Let’s have a look at the costs involved when buying physical gold:

While it’s great for wealth preservation, it’s not the most cost-efficient way to invest in gold.

Example

Rajesh invested ~₹5,00,000 in Gold Bars back in 2021 and sold it in 2025. Here’s how it turned out:

Digital Gold

Digital Gold lets you buy, sell, and store 99.9% pure gold online without worrying about physical storage.‍

Here’s how the costs look for digital gold:

‍Digital gold looks perfect—no storage costs, free insurance, and pure gold investment. But a 3-6% selling spread means you always sell lower, making it an expensive choice in the long run.

Example

Rohini invested ~₹5,00,000 in Digital Gold in 2021 and sold it in 2025. Here’s how it turned out:

Gold Mutual Funds

A Gold Mutual Fund is an investment fund that invests in Gold ETFs or gold-related assets, offering diversification, professional management, and SIP options.

These funds are actively managed by professionals who allocate investments to track gold prices, offering diversification and flexibility. You can start with SIPs or a lump sum through mutual fund platforms.

Here’s what you need to know:

‍Gold mutual funds are ideal for those who prefer regular contributions over lump-sum investments and want to stay away from timing the markets.

Example

Sam invested in SBI Gold Mutual Fund back in Jan, 2021 and sold it in Jan, 2025. Here’s how much he made:

Gold ETFs

Gold ETFs invest in 99.5% pure gold, stored in secured vaults by fund houses and may hold some cash equivalents for liquidity.

ETFs directly track gold prices. If gold prices rise, so does your investment. If they fall, you take a hit. You can trade them on the stock exchange, just like stocks, through brokers like Zerodha, Groww, etc.

Here’s how it works:

ETFs are a liquid, and transparent way to invest in gold, offering market-linked returns without physical ownership hassles and least additional costs.

Example

SGB (Sovereign Gold Bond)

SGBs are RBI-backed gold bonds that pay 2.5% annual interest and have no capital gains tax if held for 8 years. You could buy via banks, post offices, or brokers.

Here’s how the costs look for SGB:

Note: There are no SGB series open at this point. But, we’ll be the first to inform you when it’s back!

Example

SGB earns you interest income (taxed as per slab rate) over the gold appreciation which makes it the most profitable way to invest in gold. However, it has a lock-in period of 5 years.

Note: SGBs have been discontinued for a while now, however, the investors who got in till the last SGB series (Feb, 2024) are still reaping these benefits!

Which one is the best?

No two gold investments are the same. See it for yourself-

If you invested 5 Lakhs in each back in 2021, this is how it’d have turned out:

Each investment started with ₹5 lakh, but their final returns varied due to charges, taxation, and market factors.

So, what’s the best way to invest?

It depends on your goal. If you want tangible gold for long-term wealth preservation, physical gold works. If you prefer liquidity and lower costs, ETFs are better. Mutual funds suit SIP investors, while digital gold offers low cost entry to gold investments but has higher costs and charges.

Before investing, weigh the costs, risks, and flexibility—because even with gold, how you invest makes all the difference!

‍

While it’s great for wealth preservation, it’s not the most cost-efficient way to invest in gold.

Example

Rajesh invested ~₹5,00,000 in Gold Bars back in 2021 and sold it in 2025. Here’s how it turned out:

Digital Gold

Digital Gold lets you buy, sell, and store 99.9% pure gold online without worrying about physical storage.‍

Here’s how the costs look for digital gold:

‍Digital gold looks perfect—no storage costs, free insurance, and pure gold investment. But a 3-6% selling spread means you always sell lower, making it an expensive choice in the long run.

Example

Rohini invested ~₹5,00,000 in Digital Gold in 2021 and sold it in 2025. Here’s how it turned out:

Gold Mutual Funds

A Gold Mutual Fund is an investment fund that invests in Gold ETFs or gold-related assets, offering diversification, professional management, and SIP options.

These funds are actively managed by professionals who allocate investments to track gold prices, offering diversification and flexibility. You can start with SIPs or a lump sum through mutual fund platforms.

Here’s what you need to know:

‍Gold mutual funds are ideal for those who prefer regular contributions over lump-sum investments and want to stay away from timing the markets.

Example

Sam invested in SBI Gold Mutual Fund back in Jan, 2021 and sold it in Jan, 2025. Here’s how much he made:

Gold ETFs

Gold ETFs invest in 99.5% pure gold, stored in secured vaults by fund houses and may hold some cash equivalents for liquidity.

ETFs directly track gold prices. If gold prices rise, so does your investment. If they fall, you take a hit. You can trade them on the stock exchange, just like stocks, through brokers like Zerodha, Groww, etc.

Here’s how it works:

ETFs are a liquid, and transparent way to invest in gold, offering market-linked returns without physical ownership hassles and least additional costs.

Example

SGB (Sovereign Gold Bond)

SGBs are RBI-backed gold bonds that pay 2.5% annual interest and have no capital gains tax if held for 8 years. You could buy via banks, post offices, or brokers.

Here’s how the costs look for SGB:

Note: There are no SGB series open at this point. But, we’ll be the first to inform you when it’s back!

Example

SGB earns you interest income (taxed as per slab rate) over the gold appreciation which makes it the most profitable way to invest in gold. However, it has a lock-in period of 5 years.

Note: SGBs have been discontinued for a while now, however, the investors who got in till the last SGB series (Feb, 2024) are still reaping these benefits!

Which one is the best?

No two gold investments are the same. See it for yourself-

If you invested 5 Lakhs in each back in 2021, this is how it’d have turned out:

Each investment started with ₹5 lakh, but their final returns varied due to charges, taxation, and market factors.

So, what’s the best way to invest?

It depends on your goal. If you want tangible gold for long-term wealth preservation, physical gold works. If you prefer liquidity and lower costs, ETFs are better. Mutual funds suit SIP investors, while digital gold offers low cost entry to gold investments but has higher costs and charges.

Before investing, weigh the costs, risks, and flexibility—because even with gold, how you invest makes all the difference!