Investing In Gold and Other Options For Retail Investors in 2025
Gold has long been a favoured asset for Indian investors due to its timeless value and historical stability. Over the years, gold has proven to be a safe haven, offering steady returns and diversifying investment portfolios. Today, various investment options in gold cater to both physical and digital preferences, providing flexibility to retail investors.
Types of Gold Investment Options
Some of the best way to invest in gold are:
- Physical Gold: Investing in physical gold involves buying gold jewellery, bars, or investing in gold coins. The most common form is jewellery, which is usually made of 22-carat gold, while coins and bars are often 24-carat, the preferred form of secondary trading. Buying physical gold offers tangible ownership, but it also comes with risks, such as storage, insurance and locker charges. This investment may result in a higher cost due to these factors, and it can be difficult to liquidate quickly in emergencies unless you are willing to accept a lower price.
- Gold ETFs: For those looking to invest without holding physical gold, Gold ETFs (Exchange Funds) are a popular option. These are digital representations, typically held in 1-gram units of gold, which are traded on the stock market. Gold ETF provides liquidity and the convenience of being bought or sold through a trading account. This makes it one of the most accessible investment options in India for retail investors. The annual fees for gold ETFs range from 0.50% to 1.00% and include brokerage and the fund’s expense ratio.
- Gold Mutual Funds: Similar to gold ETFs, gold mutual funds offer a way to invest in gold without owning physical gold. Unlike ETFs, they are bought and sold at the net asset value (NAV) set by the mutual fund, which fluctuates daily based on the market price of gold. These funds offer retail investors a convenient method to gain exposure to gold as an investment option without managing the complexities of owning gold directly.
- Sovereign Gold Bonds (SGBs): Issued by the Reserve Bank of India (RBI) on behalf of the Government of India, Government Gold Bonds are a reliable form of gold investment in India. These bonds guarantee the gold’s value and offer an annual interest rate of 2.50%. SGBs have an 8-year maturity, but they also allow for early exit after 5 years. Additionally, SGBs are tax-efficient, with capital gains being tax-free if held till redemption. The bonds are listed on stock exchanges, providing liquidity and flexibility for retail investors.
- Digital Gold: Digital gold offers a way to invest in gold electronically, and it is available through a few authorised issuers. Companies like Indiagold manage the gold holdings, ensuring the investor owns a share of physical gold, but without the hassle of storage or safekeeping. The option of e-gold is particularly appealing to investors who want to own gold without having to buy physical gold or worry about the risks involved with physical gold.
- Gold Schemes by Jewellers: Many jewellers in India offer gold schemes that allow customers to buy gold over time by investing in small amounts periodically. These schemes work similarly to a systematic investment plan (SIP), where a fixed sum is paid each month, and the equivalent gold is allocated. However, these schemes are often unregulated and carry a risk of default. This makes them a less secure investment choice compared to more structured options like SGBs or ETFs.
- Gold Mining Stocks: Another indirect way to invest in gold is through gold mining stocks. While not a direct investment in gold itself, these stocks are often tied to the value of gold, as their performance typically mirrors the rise and fall of gold prices. However, investing in gold mining stocks does not guarantee the same returns as direct gold investments and comes with risks associated with the company’s performance.
Benefits of Investing in Gold
If you’re wondering, “Is gold a good investment?” then you need to know about the significant benefits of gold investment:
- Hedge Against Inflation: One of the most compelling reasons to invest in gold is its ability to act as a hedge against inflation. As the cost of living increases, the value of gold tends to rise. This makes it an effective safeguard against the eroding value of money due to inflation.
- Liquidity: Gold is highly liquid, meaning it can be easily bought and sold whenever needed. This is particularly beneficial during emergencies when you may need quick access to cash. Whether you choose to sell physical gold, trade gold ETFs, or redeem sovereign gold bonds, you can easily access the value of your investment.
- Diversification of Portfolio: Gold offers diversification benefits because its performance is often uncorrelated with its other asset classes like equities or bonds. This means that even if other investments are underperforming, gold can act as a stabilizer in your portfolio. A well-diversified portfolio should ideally include a small proportion of gold- typically 10-15% to mitigate risks.
- High Return on Gold Investment: Historically, gold investment in India has provided good returns, often outperforming other asset classes during periods of economic uncertainty. This makes gold a reliable asset, both for long-term growth and as a safeguard against market risks.
- Crisis Commodity: Gold is often referred to as a “crisis commodity” due to its ability to retain its value in times of geopolitical instability or economic turmoil. In times of market volatility or crisis, the demand for gold typically rises, ensuring that it remains a safe store of value.
What is the Minimum Investment Requirement for Gold?
The minimum capital required to invest in gold can vary significantly depending on the type of gold investment you choose. Most investment options are diverse in terms of affordability, allowing newcomers to enter with minimal investment:
- Physical Gold: The minimum requirement for investing in physical gold, such as coins or jewellery, is typically around Rs. 6,000 which is approximately the cost of a 1-gram gold coin.
- Gold ETFs: For those who prefer digital transactions, gold ETFs are an excellent choice. You can start investing in gold ETFs with an amount ranging from Rs. 50 to Rs. 100, depending on the unit price of the ETF.
- Sovereign Gold Bonds (SGBs): If you are looking for a government-backed investment, SGBs are available starting from Rs. 5,000, equivalent to 1 gram of gold.
- Gold Mutual Funds: If you want a more flexible approach, gold mutual funds allow you to start investing with a minimum of Rs. 100. This option enables investors to invest in gold-related securities without physically owning gold.
- Digital Gold: A low-entry point, digital gold allows investors to start with as little as Rs. 1, making it a viable option for small-scale investments. You can easily access digital gold from Indiagold’s website and buy it with just a click.
Each of these options provides a way for retailers to explore gold investment with varying degrees of commitment and risk, catering to both small and large investors alike.
Taxation of Gold Investment Options
When considering the use of gold as an investment, it’s essential to understand how taxation works across different types of investment.
- Digital Gold: If you own digital gold for less than 36 months, you do not incur tax directly on returns. However, for long-term capital gains, a tax of 20% on the returns is applicable, along with a surcharge and 4% cess.
- Physical Gold: With physical gold, short-term capital gains are added to your taxable income and taxed as per the applicable income tax slab rate. Long-term capital gains, on the other hand, are taxed at 20% along with a 4% cess.
- Gold ETFs and Mutual Funds: Investing in gold through gold ETFs or mutual funds is subject to a 20% tax rate on long-term capital gains, along with a 4% cess. For short-term investments, the tax is applicable as per your income tax slab.
Things to Consider Before Investing in Gold
Before taking the leap into investing in gold, especially for retailers, several key factors should be considered to make informed decisions. These considerations can help you understand how to get gold wisely:
- Performance: The performance of gold investments like mutual funds or ETFs might differ from the price of physical gold. The value of gold is affected by various factors, global demand, and economic conditions, so it is essential to analyse the market thoroughly.
- Security: When purchasing physical gold, consider how to securely store it. This may involve safe deposit boxes or home safes to protect your valuable assets. You do not need to worry about physical storage with options like digital gold, gold ETFs, and gold mutual funds.
- Portfolio Diversification: It is crucial to diversify your investment portfolio. While gold can act as a hedge against inflation and economic uncertainty, its prices may not always move inversely to the stock market. Understanding these market dynamics can help you balance your portfolio better.
How to Buy Gold?
Buying gold in India is convenient and can be done through various trusted channels like banks, non-banking financial companies (NBFCs), and other lending institutions. Banks typically offer options such as gold coins and bars with assured purity, while NBFCs and lending institutions provide access to digital gold, enabling easy purchase through apps or platforms.
Additionally, some lending institutions facilitate investments in sovereign gold bonds, combining safety and returns. Lending companies like Indiagold provide easy access to 24K digital gold as well as gold loans with an interest rate of 0.85% per month and quick access to the funds.
Conclusion
Investing in gold offers retail investors a reliable and flexible way to hedge against inflation and economic uncertainty. You can choose among the different options of gold investments catering to different risk appetites and capital levels. By understanding the tax implications, security measures can make informed decisions to diversify and strengthen their portfolios.
