Gold has delivered 10%–11% CAGR in INR terms over the last 20 years — matching or beating many debt instruments while providing portfolio insurance during equity crashes. But how you own gold matters as much as whether you own it.
Physical gold
Jewellery carries 15%–25% making charges that you never recover on resale. Gold coins and bars are better but involve storage risk, insurance costs, and purity concerns. Selling physical gold requires a jeweller visit, purity testing, and negotiation. For investment purposes, physical gold is the worst option.
Digital gold
Platforms like Paytm, PhonePe, and Google Pay let you buy gold in fractions as small as 1 rupee. The gold is stored in insured vaults by MMTC-PAMP or Augmont. Buying is instant, but the buy-sell spread is typically 3%–5% — meaning you lose 3–5% of your investment the moment you buy. There is no SEBI regulation, and exit liquidity depends entirely on the platform.
Gold ETFs
Gold ETFs trade on the stock exchange and track domestic gold prices with expense ratios of 0.4%–0.6%. You need a demat account, but buying and selling is as easy as any stock trade. The bid-ask spread on popular ETFs like Nippon Gold BeES or HDFC Gold ETF is typically under 0.3%. Gains are taxed as per your income tax slab if held under 3 years, or at 12.5% LTCG if held longer.
Sovereign Gold Bonds (SGBs)
SGBs, issued by the RBI, offer the best deal: gold price appreciation plus 2.5% annual interest, with zero capital gains tax if held to maturity (8 years). The catch is liquidity — premature exit is only possible after 5 years via the secondary market, where bonds often trade at discounts.
Our recommendation
For long-term allocation (5%–15% of portfolio), SGBs are unbeatable when available. For tactical or short-term positions, gold ETFs offer the best combination of cost and liquidity. Avoid digital gold for amounts above 10,000 — the spread makes it expensive. Physical gold is for weddings, not wealth building.
How much gold
Financial advisors typically recommend 5%–15% of your total portfolio in gold. More than 15% drags long-term returns; less than 5% does not provide meaningful diversification. Rebalance annually alongside your equity and debt allocation.