How to Invest in Gold in India – Ways, Advantages and Disadvantages

By Advisorymandi
15-January-2019 11:59:13 AM

Investing in gold is one of the oldest forms of investment in India. A large percentage of the population in the country believes in accumulating wealth by way of making an investment in the yellow metal i.e. gold. It is considered one of the prominent assets to hedge against inflation and used it during the financial emergency. With so many investment options available to the people these days in the form shares, mutual funds, real estate, etc, the question that crops out here is investing gold a profitable option? If yes, then what are the different ways to invest in gold in India? Let us look into the prominent gold investment options and find out the best one for your portfolio.


Buying Gold in the Form Jewelry

This is one of the oldest forms of making an investment in the gold used by the people in India. Gold is purchased from the jewelry stores in the form of gold ornaments, bars or coins. The gold items can be sold back in case of an extreme emergency or for making another jewelry. It is no doubt an attractive investment alternative, but buying physical gold in the form of jewelry from the shops has some advantages and disadvantages.


Advantages of buying gold jewelry

  • It is quite easy to buy i.e. no demat account is necessary to invest in gold.
  • Zero investment charge is involved.
  • You can sell or pledge it hassle-free.
  • It is not affected by any fluctuations in the stock market.

Disadvantages of buying gold jewelry

  • If you are purchasing gold from the jewelry store, then you have to pay the making charges.
  • There is a greater risk of theft or misplaced if you are storing the physical gold in the home.
  • If the gold is stored in the bank, then you may have o shell out the locker charges.
  • When you sell the jewelry, then you may not get the actual value of the money and also making charges will be deducted.

Gold Exchange Traded Funds (ETF)

Gold ETF’s are essentially the paper gold or dematerialized form, which provides an option to invest in gold in India online to the people. Here the underlying asset is gold. Making an investment in the gold ETF’s is similar to investing in the shares of the company. However, the only difference here is that investing in the shares represents having an ownership stake in the company, which is not possible while investing in the gold ETF. The buying and selling take place in the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The transactions are regulated by the Securities and Exchange Board of India (SEBI). The change in the price of the gold directly affects the gold ETF prices. A demat account is absolutely essential to start trading in the gold ETFs. 1 unit of ETF is equal to the 1gm of gold. The ETF units are held in an electronic form. Here, an individual may invest in the lump sum or through the Systematic Investment Plans (SIP).


Advantages of investing in Gold ETF

  • There is no fear of burglary and storage problem.
  • Making charges is not required to be paid.
  • It attracts zero wealth tax.
  • It has excellent liquidity, which means that ETFs can be sold on the stock exchanges hassle-free.
  • Tracking investment in gold ETF is absolutely easy.
  • No entry and exit charges.

Disadvantages of investing Gold ETF

  • The returns may be lower than the actual value of the gold because investing in Gold ETFs paying the asset management and brokerage charges.
  • It is an intangible asset, which means that you cannot see or feel it.
  • You are required to pay certain percentage of the charges to the stockbroker, every time you purchase or sell units of gold ETF.
  • You have to pay the expense ratio or fund management charges, which generally lies between 0.9% to 1%.


Sovereign Gold Bonds (SGB) Scheme

It is another way of investing in gold by way of owning a paper gold. It is basically a debt instrument, which is issued by the government of India at the current gold prices going on in the market. The SGBs generally carry a maturity period of 8 years. A very important thing to note here is that there is no exit option available to the investors from the 5th year. The sovereign gold bonds can be purchased from the banks, Non-Banking Financial Companies (NBFCs), post offices, National Saving Certificate (NSC) and so on.

The SGBs are issued by the Reserve Bank of India (RBI) on behalf of the government. The bonds are traded on the stock exchanges. For investing in the sovereign gold scheme, you require to pay the issue price in cash on maturity to the SEBI authorized brokers. An invest in SGB can be initiated with even 1 gm gold. You also have an option to use SGB as collateral in case you require a loan. These types of bonds have a fixed rate of interest. If you redeem the SGB, then it is done at the prevailing price of the gold in the market. For example, suppose, you purchased 20 units of SGB when the market price of the gold at that time was Rs. 5,000 per gram, for Rs. 10, 00, 00. During the time of redeeming SGB, the prices of the gold have increased to Rs. 7,000 per gram. Hence, you sell SGB for Rs. 1, 40,000. So, you made a total profit of Rs. 40,000.


Advantages of Investing Sovereign Gold Bonds (SGB) Scheme

  • There is no risk of theft or loss because if it is backed by the Indian government.
  • Zero storage cost is involved.
  • You get an added advantage of the gold price movement. For example, if the price of the gold is appreciating in the market, then you can redeem SGB.

Disadvantages of Investing Sovereign Gold Bonds (SGB) Scheme

  • There is lock-in period of 5 years, which means that it can be redeemed early after 5 years.
  • You have to provide some necessary details by filling up a Know Your Customer (KYC) form. This can be a bit inconvenience to some investors, who do not like to provide their personal details while purchasing the physical gold.
  • If after the maturity period of 8 years, the gold prices are depreciating, then you may not have any option but get the lower returns.

Gold Coin Scheme

This is another one of the ways of making an investment in physical gold in the form of gold bars and coins. The bars or coins can be purchased from the jewelry stores, banks, NBFCs. Now, there are some e-commerce companies also that sell the gold coins. The popularity of investing in gold among the people is such that the government of India has issued a special gold coin in India, having the National Emblem of Ashok Chakra on one and Father of the Nation, Mahatma Gandhi on the other side. The specially minted gold coins by the government are available in the denominations of 5 and 10 grams. If you decide to invest in the bars, then it is available in the denomination of 20 grams. The gold coins and bars carry a Bureau of International Standards (BIS) hallmark. The coins can be purchased from the recognized MMTC outlets, specified bank branched and post offices.


Advantages of investing in gold coin scheme

  • You have the option to gift the coins and bars on any religious or festive occasion.
  • It is quite easy to purchase.
  • It carries the highest level of purity because it bears the Bureau of International Standards (BIS) hallmark.

Disadvantages of investing in gold coin scheme

  • You have an option to purchase buy gold coins and bars from the banks but the disadvantage is that the banks do not buyback them. You can sell them at the jewelry stores.
  • If you wish to convert the coins or bars into the jewelry, then you may have to shell out a considerable amount of money.
  • You have to pay some tax while buying from the bank.



It is important that you must take a hard look at your requirements (whether long-term or short-term) and then take a decision to invest in gold. You must make an effort to learn about the nature of different types of gold investments, compare the advantages and disadvantages to taking a well-informed investment decision. The gold is an important asset when it comes to safeguarding yourself against the inflation and taking this into the account, most of the experts suggest having 10% of the portfolio, specially allocated for making an investment in gold. This is because the yellow metal is a safe asset during the times of the rising product prices and economic uncertainties.

Do you have any other thoughts or ideas on how to invest in gold in India? Let us know in the comments.

Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.

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Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.

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