### **I. Introduction**

* Brief explanation of what a gold loan is

Gold loan is a collateral based lending product. In gold loans, the borrower is able to avail a loan from the lender on a condition that the borrower gives custody of their gold to the lender as a pledge, this pledge serves as a counter-risk measure for the lender.

* Importance of gold prices in determining loan value

Loan value in case of gold loan depends upon the value of the gold collateral. And the value of the gold collateral is dependent upon the price of gold. Hence, the gold prices are highly important in determining the loan value that a borrower can get by pledging their gold collateral. 

* Purpose of the article: To explain how changing gold prices affect gold loan terms and outcomes.

The purpose of the article is to discuss and understand how gold prices impact the gold loan, and what are the underlying reasons behind the fluctuation in the gold prices. 

### **II. Understanding Gold Loans**

* Definition and how gold loans work

Gold loan has been one of the most famous lending products in India for decades. It is a collateral based lending product where the borrower’s gold serves as a collateral to secure a loan. How gold loans work is that the borrower avails a loan from the lender and pays off the outstanding along with the applicable interest rate as per the loan agreement. However, to set-off the lending risk, the lender takes custody of the borrower’s gold, and gives back the custody once the loan is paid back in full with all applicable interest and charges.

* Role of gold as collateral

Gold in India has a high cultural significance, and if considered from the lens of a financial instrument, the metal has been able to produce fantastic returns over a long investment timeframe, and also the fact that the metal has a high demand in the secondary market, makes it highly liquid, and desirable as a component of an overall portfolio from diversification point of view. These qualities make gold an amazing collateral for the lenders as it can be readily liquidated in the secondary market by the lender to recover any outstanding dues in case of a default by the borrower. 

* Loan-to-Value (LTV) ratio: What it means and why it matters

Loan to value (LTV) ratio is the amount of loan that a borrower can secure in relation to the value of their gold collateral. It is a highly relevant indicator to understand the value of a loan that one is able to secure as a loan. As per the guidelines by the Reserve Bank of India (RBI), the maximum LTV that can be offered by the lenders in India is 75%. I.e. for a gold collateral of a market value of INR 100,000 \- a maximum of INR 75,000 can be availed in gold loan. While borrowing, it is important to choose a lender offering maximum LTV. Lenders like indiagold offer LTV up to 75% on gold loans\!

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### **III. What Drives Gold Price Fluctuations?**

* Global economic conditions (inflation, interest rates, currency strength).

Gold is a globally traded commodity. Hence, its prices are also dependent upon global economic conditions and indicators. Various economic indicators such as inflation, interest rates, and currency strength have a direct or indirect impact on the demand and supply forces for gold which eventually has a major impact on the gold prices. While  studying gold price trends, it is important to also take these factors into consideration as it helps understand the underlying drivers and their impact on the prices. 

* Demand and supply dynamics

Like any other commodity, gold’s price too is driven by the demand and supply forces in the market. Higher demand in relation to the available supply contributes to the increase in the prices, and vice versa. Demand and supply dynamics in the market is one of the biggest reasons behind changing gold prices in the international markets.

* Geopolitical tensions and market sentiment

Gold is often considered as a hedge for uncertainty. Reason being, gold is generally considered safe due to its solid demand and ability to generate consistent returns over long investment horizons. In events of geopolitical tensions, when the investors look to divest from their risky high growth investments to invest in a safer alternative, the demand for gold increases, and so does the price. The same applies for market sentiments during uncertainty. The demand for safe investments is one of the major forces behind the fluctuation in gold prices.

* Central bank policies

Central bank policies aim at controlling the economic factors within the country, these policies can be expansionary or contractionary in nature, which can impact the demand for gold locally, essentially impacting the price levels.  

### **IV. Impact of Gold Price Increase on Gold Loans**

* Higher valuation of pledged gold

This is one of the biggest effects of gold price on loan amount. An increase in the gold price essentially inflates the value of the collateral held by the lender. Example \- Let’s suppose you have availed a gold loan amounting to INR 75,000 against a gold of value of INR 100,000 but now the gold price has increased by 15%, the value of the underlying gold collateral will have also increased by 15% to INR 115,000

* Possibility of higher loan amounts

Since the loan amount is decided based on the value of the gold collateral, an increase in the value of the gold also opens up the possibility to avail more loan. Let’s consider the above example. Earlier, the borrower has availed an INR 75,000 loan against gold of value INR100,000, and now that the prices have increased by 15%, the gold value has increased to INR 115,000, thus this opens the possibility for the borrower to avail additional loan to bring up the loan value by 15% to INR 86,250 from the earlier INR 75,000

* Increased LTV ratio benefits (if policies permit)

The Loan-to-value ratio and gold price changes have an impact on the maximum gold loan that a borrower can avail. Depending upon the lender's policies, an increase in the gold price may result in an enhanced loan eligibility. I.e. if you have availed the maximum loan as per the LTV policy of the lender, and then the increase in the gold price results in an overall increase in the value of the gold collateral, you may qualify for availing more loan as you’d not have availed the high available loan as per the LTV policy.

* Lower risk of margin calls or top-ups

Lower risk of margin calls is one of the biggest effects of rising gold prices on loan repayments. An increase in the gold price boosts the overall value of the gold. This essentially qualifies the borrower for an enhanced loan amount, and if the borrower chooses to not go ahead with the enhanced gold loan amount, it decreases the risk of margin calls or to-ups\!

### **V. Gold loan Impact Due To Decrease in Gold Prices**

* Reduced value of gold collateral

A drop in the gold prices can result in a subsequent drop in the value of the gold collateral. Continuing on our earlier example, let's suppose in this case the gold price in the market drops by 5% then the value of your gold collateral will go down from INR 100,000 to INR 95,000 which will subsequently have an impact on the amount of loan that you can borrow from the lender.

* Risk of margin call or loan recall

Upon the gold price drop and loan value decrease, the value of the underlying collateral also decreases, and the maximum loan that can be availed against the said collateral also decreases by the same margin. So if you’re someone who has availed the maximum available gold loan against a gold collateral, if the gold prices decrease, then you may get a margin call from the lender to repay the difference amount to maintain the same loan to value ratio (LTV) as permissible.

* Requirement to repay part of the loan or pledge more gold

If the gold prices take a hit, the value of gold collateral decreases, and so does the maximum loan amount that can be availed against the said gold collateral. As discussed earlier, if so happens that you’ve availed the maximum available gold loan as per the LTV policies of the lender, and the gold prices take a hit, then you may receive a margin call to pay the difference to keep the LTV as per the loan policy, or to pledge more gold. 

* Potential risk of gold auction if loan isn’t serviced

If the gold value decreases substantially, it may result in the total liability shooting up considerably in relation to the total market value of the gold. In case of non-repayment in such a case, the lender may put your gold collateral up for auction to recover outstanding. Hence it is imperative to always check gold loan eligibility in fluctuating gold markets to keep a check on the possible margin calls you may receive on your existing gold loans.

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### **VI. Lender Perspective: How Institutions React to Price Changes**

* Revaluation of pledged gold

Institutions continuously reevaluate the value of the underlying gold collateral as and when the gold price changes. This helps them have a track on the risk exposure, and various lending ratios as set forth by the regulators. 

* Policy changes in gold loan LTV ratio or gold loan interest rates

Institutions are quick to react to changes in policies such as a revision in the LTV ratio of change in the gold loan interest rates. Thai allows them to stay compliant with the regulations, be competitive with their competitors, and offer best possible services to the customers. Lenders like indiagold are often considered as the first ones to react to the policy changes and implement the same towards increasing the customer satisfaction. 

* More stringent risk assessments during volatile periods

During price volatility, the lenders usually do a more stringent assessment, as due to the underlying price movement, the risk exposure may change significantly in a matter of days\!

### **VII. Borrower Strategies in Response to Price Fluctuations**

Fluctuating gold prices and loans goes hand in hand, and there are various strategies which may help the borrowers with their gold loans in times of price fluctuation\!

* Monitoring gold prices actively

Monitoring gold prices actively helps in understanding the causes of sharp changes in prices, and also helps understand how and when to take advantage of a sudden price movement. By doing so, a person planning to borrow against their gold can wait for the right price or pull the trigger at the right price and get maximum money as a loan for their gold.

* Timely loan repayment or top-ups to avoid auction

Gold prices are driven by a host of factors as we discussed earlier in the article. To avoid surpassing the maximum LTV triggered by a price fluctuation and essentially managing a buffer, timely repayment can really help. Also, it would be prudent if the borrower makes regular payment towards their due principal to ensure that they don’t receive a margin call due to a bigg change in the price levels.

* Choosing fixed vs. floating rate gold loans

Fixed interest rates, as the name suggests, fixes the interest rates at the start of the loan, whereas, with floating interest rates, the applicable rates change as and when there is a change in the bank rate or applicable lending rate by the central bank. It is prudent to take a calculated approach and choose the option which most aligns with effectively low cost paid in the form of interest payments.

* Opting for short-term loans in volatile markets

Generally, short term loans attract lower interest rates. Hence, if there is a relief in terms of lower interest rates available for short term loans, and the requirement too is for a short term, then it is prudent to opt for a short-term loan to save on some interest related costs. 

### **VIII. Regulatory Guidelines and Protections**

* RBI’s guidelines on LTV ratio

The Reserve bank of India (RBO\\I) has put forth the regulations regarding the Loan to value (LTV) ratio. As per this regulation, the lenders can give a maximum of 75% as gold loan in relation to the value of the gold. These guidelines aim to ensure that the lenders have the room to accommodate their risk exposure for frequent price changes of gold. Among the sea of lenders, indiagold shines among the very few lenders that offer highest LTV to its borrowers. 

* Auction and recovery procedures

The lenders are supposed to follow set guidelines before proceeding with auctioning of the gold to recover the dues. The borrower is to be given sufficient communications, and notices. And the auction details like date, day, and collateral detail to be published in advance. 

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Discover how gold price fluctuations affect your gold loan value, LTV ratio, and repayment terms. Stay informed to make smarter borrowing decisions.

Gold loan is a collateral based lending product. In gold loans, the borrower is able to avail a loan from the lender on a condition that the borrower gives custody of their gold to the lender as a pledge, this pledge serves as a counter-risk measure for the lender.

How Do Fluctuations In Gold Prices Impact Your Gold Loan?

Gold Loan

Many people choose to make investments in gold every year. It is one of the most traditional ways to invest money in India. There are various benefits to investing in gold.

Gold is one of the best-known assets for investments that ensure safety compared to other assets. This is also one of the main reasons for the hike in gold prices every year because the demand for gold is increasing year after year. The rates of gold are stable all over the world, which allows people to invest more.

You are not required to have deep financial knowledge related to the gold investment, unlike stocks and bonds. You can also purchase gold in an electronic format these days. It is much safer than the physical form. Over the years, the rate of gold has increased immensely. It might not give you exceptional returns, but they are safer and stable in the long run compared to other capital assets, like equity, stocks, bonds, etc.

Before diving deep into the six benefits of investing in gold, let us understand if investment in gold is worthwhile or not?

### Is Gold a Good Investment in India?

India is a fast growing economy, and the country's population’s disposable income is increasing, which opens a door for investing in interesting financial assets. So a question arises that does it even make sense to invest in a traditional investment financial instrument like gold? \- The answer is YES\! 

The value of gold has been increasing steadily over many years, this coupled with the low risk associated with gold investment, good secondary market to transact, low price volatility makes it a great investment opportunity.

However, the investors who are looking to maximize profits should be aware of the fact that although gold is a very stable and performing asset class, one should not invest solely in one asset class. It should make for a healthy percentage of your portfolio, as the low risk and low price volatility not only makes gold a great asset on its own, but also gold can have a positive impact on the overall portfolio, and bring down the overall risk if your portfolio contains high risk and volatile financial securities.

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We have jotted down the six benefits of investing in gold that only experts know, and these benefits are listed as follows:

### **Protection against inflation risks**

When you make any investment, it fluctuates over time due to inflation, and prices go up and down. This is the reason why experts suggest not to make any investment in case the value of cash depreciates over time.

However, with gold, the rate is more likely to go up, and the investment in gold protects your savings against inflation risks. Most people invest in gold, and it is considered one of the best investments for the long run.

### **Save money for the future**

Investing in gold is one of the easy and safer ways to save money for your future. You can invest in gold coins or biscuits for your future and reshape them however you want. The coins come with a certificate of authenticity, so you might have to pay a slightly higher price compared to the market rate.

Before buying gold, always check the rates in metropolitan cities like Delhi. While buying gold, also ensure that the quality of the gold is superior and ask the sellers if they would buy back the gold at a later stage. It provides you with security and safety.

### **Easy to buy and sell**

Buying and selling gold is easy. You can purchase gold from a jewelry store and sell it to another. However, you should purchase gold from verified and trusted jewelers as there are various fake variants of gold in the market. The best advantage of purchasing gold from trusted owners is that they will give you the original gold quality, which minimizes the risk of fraud.

If you require immediate cash at a later stage in your life, you can sell the gold and get immediate money. If you don’t want to sell the gold, you can keep it as collateral with the bank and ask for a gold loan. Various banks and institutions provide gold loans to the people who require immediate cash. You can also check the details of the gold loan at indiagold. So, it can be said that gold is both easy to buy and sell.

### **Maintenance Cost**

The best part about gold investments is that it doesn’t require any maintenance. You can purchase it today, and even after 100 years, gold will remain the same.

Let's assume that you invested in real estate. You will be required to keep it up-to-date every year and thus pay high maintenance costs. It also gets tiring to keep track of all the maintenance when you have a full-time job or are an entrepreneur.

On the other hand, gold investments don't require much maintenance cost. You can either keep it in your bank locker or at home. Gold doesn't age. You can check the latest prices and procedures of gold on indiagold for every state or city. It provides you with the latest gold rates every day.

### **Price stability**

One of the best advantages of gold investment is that it provides price stability compared to other assets. The prices of the gold assets don’t go down even when the market is in crisis. Many people turn towards gold investment when the market goes down or when people face financial difficulties.

When you compare a gold investment with equity, the price doesn't go down. If there is one bad tweet or news about a company, the equity or stock price of the company immediately goes down to zero. It is one of the significant benefits of investing in gold, as per the experts.

### **Tax benefits**

The gold investments are taxed at a lower price, and some gold investments don't get taxed at all. Gold investments like SBI Gold Fund are considered as a non-equity product. It allows you to get a long-term capital gain and tax benefit on these gold funds after investing for one or more years.

We can say that gold is a stable and safe investment for individuals who are looking to invest their money. Gold is known to have an inherent value in the long run. Its value remains less affected in most situations. It is one of the least affected investments, even when market crashes or pandemics happen. In worst-case scenarios, people invest their money in gold instead of stocks and bonds. So, it can be said that gold investments are the best investments, and the demand is unlikely to go down.

## To Summarize:

Gold has traditionally been a rather safe investment at least over multiple decades as compared to many other investments and is stable, so it has always been a pretty safe and preferred investment for investors with a low risk tolerance. Investing in gold affords one important protection against inflation. Due to consistent returns, gold acts as a great hedge against inflation as investment in gold allows the investor an opportunity to grow the value of their investment as the money loses its value, essentially negating the effect of inflation. Another reason is that gold is very easy to buy and sell, whether from trusted jewelers or online platforms. Its liquidity is one of the greatest advantages since it can even be used as collateral for loans, giving flexibility to investors. The other appealing feature of gold is its low maintenance costs.

Unlike real estate or other physical assets which require regular upkeep, gold demands minimal care. Once purchased, it is still worth considering free of rolling charges whether it is kept at home or at the safety locker in the bank. Moreover, gold provides price stability especially during financial crises. Stocks and equities can go to extreme limits on negative news or market downfall, but the price of gold would remain more or less stable, hence more secure in case times get dramatic. It is also a good long-term investment, and returns are stable over time. It may not produce good short-term profits, but its stability makes it a great asset in a well-diversified portfolio. Gold investments, such as gold funds, have tax benefits. These investments attract lower tax rates, making them a good option for investors looking to minimize tax liabilities. In short, gold is still a safe and stable investment that can be used to generate long-term growth with the protection against inflation and a buffer for market fluctuations.

#### **Related Articles**

- **[Unique Aspects Of Gold Loans, That Everyone Must Know in 2025](https://indiagold.co/blogs/unique-aspects-of-gold-loans-that-everyone-must-know)**
- **[Why Gold Loans Are the Quickest Way to Access Funds](https://indiagold.co/blogs/why-gold-loans-are-the-quickest-way-to-access-funds)**

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Gold has always held a significant position as an investment. Over the years, gold investments have increased in popularity as a secure investment option.

Many people choose to make investments in gold every year. It is one of the most traditional ways to invest money in India. There are various benefits to investing in gold.

Digital Gold Savings Plans: Are They Worth It?

Digital Gold Savings Plans simplify gold investment with convenience and transparency. Find out how they work, their benefits, and who should consider them.

Gold Investment

6 Benefits Of Investing In Gold That Only Experts Know


### **Introduction**

* Brief overview of gold as a traditional investment

Gold in India holds a significant value. Both financially, as well as culturally. Gold as an investment instrument has been able to generate consistently rising returns over the last couple of decades, this coupled with a solid demand in the secondary market, and many practical use cases means that gold has become a truly significant financial instrument.

* Rise of digital gold investments in the modern era

Like all things digital, gold investing has also become digital. To make gold investment convenient, and to modernize the investment method, new digital gold based financial instruments have come into existence. Example- digital gold, SGBs, etc. 

* Purpose of the article: To compare SGBs, physical gold, and digital gold in terms of investment value, security, and usability with an aim to assist the investors in choosing the most suitable investment in gold instruments. 

### **What Are the Main Types of Gold Investments?**

* **A. Physical Gold**

  * Definition and forms (jewelry, bars, coins)

Physical gold, as the name suggests, is tangible in nature. There are many forms in which physical gold can be purchased like gold ornaments, utensils, bullion like gold coins, bard, etc. 

* Traditional investment method

Physical gold has been the preferred investment method for the longest time. Reason being that ever since the early days, the tangibility of the assets helped grasp the true value of the assets. Also, a lack of digital gold based investment instruments meant that the only form in which gold investment could be done is by investing in physical gold in the form of jewellery, coins, bars, and utensils. 

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* **B. Sovereign Gold Bonds (SGBs)**

  * Issued by the RBI on behalf of the Government of India

Sovereign gold bonds are government issued securities that are denominated in the grams of gold and are one of the best gold investment options available in the market. These are alternatives to hold physical gold, allowing the investors who want to purchase gold related security solely for the purpose of investment to enjoy interest income as well as the fluctuation in the value of the gold.

* Paper/digital format

Sovereign gold bonds are in paper or digital format, i.e. the investor in the bonds would only get an acknowledgement and a proof of investment in the form of a paper or digital contract. I.e. there is no tangible gold that the investor gets to hold/see.

* Interest-bearing instrument

One of the biggest SGB investment benefits is the fact that, along with the rising intrinsic value, these financial instruments also offer interest income to the investor. The interest income is over and above the final sale or maturity value of the instrument. Hence, allowing the investor to maximize their returns.

* **C. Digital Gold**

  * Gold purchased and stored via online platforms

The gold purchased in the form of digital gold is stored by the provider. How digital gold works is that the gold provider provides fractional ownership to the total underlying gold in proportion to the money invested.

* Backed by actual physical gold in secure vaults

One of the major advantages of digital gold is that the digital gold is backed by actual physical gold that is stored in secured vaults. The benefit of purchasing digital gold is that it saves the investor effort to securely store the gold, and also allows the investor to invest any amount they see fit. I.e. There is a minimal barrier to entry concerning the amount that needs to be invested. An investor can invest as low as INR 500 in digital gold, which is clearly not the case with physical gold. Hence, all things considered, digital gold is arguably the best way to invest in gold.

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### **Investment Structure & Returns**

* **Purchase Method**

  * Physical gold can be purchased from gold smiths, online e-commerce platforms, etc. It is recommended to purchase gold only from a trusted seller, and do all necessary checks before making the purchase to avoid frauds.  


  * Sovereign gold bonds are offered by the government. These bonds are not always readily available. These securities are released through registered brokers. The investor can apply for investment in the sovereign gold bonds through these registered brokers, required that the investor has a DEMAT account with the brokers.  


  * Digital gold can be purchased from websites offering digital gold solutions to the investors. It is important to purchase digital gold from trusted sellers, as these instruments carry seller risk. Trusted online platforms like Indiagold can be used to start your investment journey in digital gold. So one can start investing in gold with modern solutions like digital gold.

*  **Returns**

  * Capital appreciation

Irrespective of the investment avenue, gold related investment instruments offer capital fluctuation in relation with the actual market price fluctuation as seen in the physical gold. Looking at the track record, gold has produced exceptionally good returns over a longer investment timeframe, so all physical gold, digital gold, and sovereign gold bonds can help make exceptional returns in the form of capital appreciation.

* Interest income (specific to SGBs)

This advantage is exclusive only to the sovereign gold bonds. SGBs along with the capital appreciation, also offers interest income to the investors. This allows the investors to enjoy a higher magnitude of total returns. SGB interest rates stand at 2.5% per annum on the initial investment sum.

* Impact of market fluctuations

Market fluctuation in the gold price has an impact on the value of the gold based financial instruments. Be it physical gold, sovereign gold bonds, or a digital gold security, these are not prone to the fluctuations in the gold price. An increasing gold price can help an investor make exponential returns, and vice versa.

### **Security & Regulatory Measures**

* **Regulatory Oversight**

  * SGBs: SGBs are RBI/government guaranteed instruments. These are issued at an issue price, and give the investor returns in the form of interest payment along with an increase in the value proportional to the price growth of gold. Since these securities are issued by the government, these are guaranteed by the government as well as the regulator and there is no chance of default.

  * Physical gold: BIS hallmarking is done by the Bureau of Indian Standards, hallmarking is a process of marking the physical gold with a symbol which signifies the purity of the metal. It is a great way to identify the gold that you’re purchasing and ensure that you’re paying for the right purity.

  * Digital gold: Platforms offer comfort to the investors. It is necessary to only invest in trusted and reputed platforms offering digital gold. 

* **Storage and Insurance**

  * Security risks of investing in physical gold storage : This is a major drawback of investing in physical gold. The investor has to ensure that the proper storage is in place to ensure safety of the gold, and more often than not, this also attracts additional cost.

  * Insurance coverage (digital & physical) : One can purchase insurance to safeguard their investment in digital gold, however many issuers offer insurance by default along with purchase of the security. For physical gold this can be crucial as there is a higher risk with dependable storage.

### **Cost and Tax Implications**

* **Upfront and Ongoing Costs**

  * Making charges (physical)

When purchasing physical gold, especially in the form of utensils or jewellery, the jewellers charge a making charge. As the name suggests, this is a type of an additional cost over and above the value of the gold metal to create the gold in the form that is being sold. 

* Brokerage/platform fees (digital)

In the context of investing in digital gold, certain platforms may charge brokerage or platform fees as a convenience charge to relay the service of providing the opportunity to invest digital gold to the investor.

* No cost beyond purchase (SGBs)

This is a great advantage of investing in sovereign gold bonds (SGB), apart from the cost related to the purchase consideration, the investor does not have to bear any additional cost.

* **Taxation**

Tax implications is something an investor should keep in mind while formulating their gold investment strategies, as it can have a detrimental effect on the total returns made by the investor.

* Capital gains tax: Capital gains tax is applicable on all securities where the investor has made a gain in terms of an increased market value. The gain is equivalent to the difference between the selling price and the original purchase price. Capital gains tax can be classified into two parts \- Short term capital gains, and long term capital gains. If the security is purchased and sold by the investor within 1 year then the gains are classified as short term capital gains, and if the horizon exceeds 1 year, i.e. the investor makes gold investment for long-term, then it is classified as long term capital gains.   
  Gold is no exception. Investing in physical, digital gold, and SGBs also attract capital gains tax. However, if one holds the SGB till maturity, then capital gains tax is exempted.

  * Indexation benefits (SGBs) : Investing in the SGB offers the investor indexation benefits. I.e. Long term capital gains can be indexed up to 20% in other words, gains up to 20% are adjusted to inflation. This helps in minimizing the tax liability.

### **Gold investment comparison and Pros and Cons of Each Investment Type**

| Investment Type | Pros | Cons |
| ----- | ----- | ----- |
| Physical Gold | Physical gold as an asset is tangible, and universally accepted as it has a solid secondary market with high demand | Storage risk, making charges, theft risk |
| SGBs | Government-backed, pays interest, tax benefits | Lock-in period, no physical ownership |
| Digital Gold | Digital gold investment in India is convenient, secure storage, fractional ownership | Platform dependency, limited regulation |

### 

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Compare SGBs, physical gold & digital gold on returns, safety & tax benefits to choose the best gold investment for your financial goals.

Gold in India holds a significant value. Both financially, as well as culturally. Gold as an investment instrument has been able to generate consistently rising returns over the last couple of decades

A Comprehensive Comparison of Digital Gold Investments: SGBs, Physical Gold, Security Measures, and Pros & Cons

Digital Gold

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. 

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## **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. 

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## **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. 

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## **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. 

#### **Related Articles**

- **[A Detailed Guide To The PM Mudra Yojna](https://indiagold.co/blogs/a-complete-guide-to-the-pm-mudra-yojna)**
- **[Unique Aspects Of Gold Loans, That Everyone Must Know in 2025](https://indiagold.co/blogs/unique-aspects-of-gold-loans-that-everyone-must-know)**

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Gold has been the world's currency of the choice from ancient time civilizations to the modern era. It is not only known to serve as a portfolio diversifier but also considered as a perfect hedge v/s inflation.

Investing In Gold and Other Options For Retail Investors in 2025

Gold Investment & Retail Investment Guide

## **Introduction**

* Brief explanation of gold as a valuable commodity

Gold has been a valuable commodity for ages now, in the earlier years, it was used as a medium of exchange i.e. currency, and then people started using gold to make ornaments, utensils, etc. as it signified wealth. Currencies were also pegged against the gold reserves that the country held. Over the last couple of decades gold has emerged as a fantastic financial instrument. It has been able to produce consistent returns, often surpassing some traditional financial instruments. 

* Importance of tracking gold prices (for investors, consumers, governments)

Tracking gold prices is extremely important if you’re an investor, or even a consumer. Reason being, gold prices are volatile and are highly dependent on the demand and supply forces and geopolitical factors. To ensure that you’re up to date on the prices to make purchase or sale decisions, it is essential to track the live prices of gold. By doing so, you can ensure that you don’t miss the opportunity to capture the ideal price to make an investment decision and understand the factors affecting gold rates. 

Also, if you’re someone who is planning to avail a gold loan, then tracking gold prices can help you avail gold loan while gold prices are at high levels, enabling you to get maximum loan for your gold collateral. indiagold offers gold loans upto 75% LTV (Loan to Value) making it one of the highest loan amounts against gold’s market prices as set by the Reserve Bank of India (RBI).

* Purpose of the article: to understand the timing and reasons behind gold rate drops

The purpose of this article is to discuss and understand the reason why the gold price fluctuates the way they do i.e. reasons behind gold price trends, and the core reasons why gold prices take a dip.

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## **Understanding Gold Pricing**

* How gold prices are determined (global markets, demand-supply, central banks)

Gold prices fluctuate citing various reasons. Gold price fluctuation is determined by a couple of core reasons. Let’s discuss the reasons in detail:

1. Global Market : Gold price and geopolitical events are closely related. It is a precious metal which is in demand across the globe. Also, considering that investors throughout the world prefer investing in gold to diversify their portfolio, and normalize the risk. The demand and supply in the global markets is a major contributor to the gold price fluctuation.

* Role of international benchmarks (e.g., LBMA) : ICE Benchmark Administration (IBA) runs gold auctions twice a day at 10:30 am and 3:00 pm London time for traders to trade physical gold for spot delivery, which sets the benchmark of gold price in the market known as the LBMA (London Bullion Market Association). These benchmarks have an impact on the global gold prices.

* Difference between spot price and futures price : Spot prices are price of gold for delivery as on the date on trade i.e. spot delivery, and future price is a contract between future contract buyer and seller to trade a fixed weight of gold at a fixed price on a fixed future date. Spot and future prices usually vary and have a major impact on the global gold prices and demand.

## **When Do Gold Rates Decrease?**

* **Periods of Economic Stability**

  * Investors shift to riskier assets (stocks, real estate) : During the times of economic stability, the investors largely move towards investing in more risky assets like equities to earn superior returns. This results in a drop in the overall demand of gold, which leads to a drop in price. 

* **Strong U.S. Dollar Periods**

  * Gold is dollar-denominated; a stronger dollar makes gold expensive for other currencies : In the global markets, gold can be purchased in exchange of US dollars. Hence, whenever the US dollar appreciates in the global market, gold essentially becomes more expensive globally resulting in a decrease in demand, and essentially a dip in the price. Strengthening and weakening US dollars is one of the biggest reasons behind global gold price volatility. 

* **High Interest Rate Environments**

  * Higher yields on bonds or savings reduce gold’s appeal (as gold offers no interest) : Gold price and interest rates are inversely related. High yields offered by other safer assets like bonds, and savings accounts decreases the attractiveness of gold in the primary as well as secondary markets as the investors flock towards these other safe asset classes offering similar or higher returns with similar risk exposure, essentially making it less attractive for the investors to invest in gold. Hence higher yields on bonds is one of the reasons why gold prices decrease.

* **Reduced Geopolitical Tensions**

  * Less need for "safe-haven" assets like gold : Gold prices and geopolitical events move hand in hand. There are various global factors affecting gold prices. During periods of high geopolitical tensions, investors flock towards investing in gold due to its characteristics such as tangibility, high liquidity, demand in the secondary market, and a high price stability. In contrast, during periods of reduced geopolitical tensions, the investors reduce their investment exposure in gold to divert their investment in high yielding assets like equities triggering gold rate movement. This essentially decreases the demand and has a contrasting effect on the prices in the international markets.
 
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## **Why Do Gold Rates Decrease?**

* **Rising Interest Rates**

  * Explanation of opportunity cost of holding gold : Gold rate and interest rates have an inverse relationship. Rising interest rates result in higher returns made from bonds, and other debt instruments in the market. These debt based instruments are considered to be highly similar to gold in terms of risk exposure and stability. Hence, whenever there is a rise in the interest rates, the investors lean towards investing in such instruments rather than gold. This triggers a decline in the demand and also the price levels. Rising interest rates have a negative impact on borrowers, hence it is imperative to choose a lender offering the lowest rate of interest to save money. indiagold offers gold loans starting at just 0.85%\* per month, making it one of the cheapest avenues to avail a gold loan.

* **Strengthening U.S. Dollar**

  * Inverse relationship between gold and USD : Gold and US dollar have an inverse relationship. i.e. a strengthening US dollar results in the decrease in the gold price and vice versa. Since gold is denominated in US dollars, a strengthening US dollar essentially boosts the gold price in the international markets, which results in decrease in demand and essentially a drop in price. In simpler terms, the impact of currency fluctuations on gold rates is high but this gets magnified when the US dollar strengthens. 

* **Decline in Demand**

  * Consumer demand (especially from major buyers like India and China) : Consumer demand is a major driver behind the gold prices in the international market. When gold rates fall, the demand rises, and vice versa. Since the prices are driven by demand and supply forces in the market, a change in consumer demand trends can have a strain on supply and affect the gold prices. 

  * Industrial demand : Industrial demand makes up for a major chunk of the overall demand and can influence the total demand in the market which influences the prices in the market.

* **Increased Supply**

  * Higher gold production or release from central banks : Since price of any commodity is largely influenced by the demand and supply forces in the market, a disequilibrium in the same can impact the prices. Since gold rates and market conditions go hand in hand, an increase in the supply results in this disequilibrium and essentially decreases the gold prices.

* **Government and Central Bank Policies**

  * Gold sales, taxes, import duties : Gold sales reflect the consumer preference, and a dip in sales can signify that the investors rather prefer other investment avenues. Also, factors such as taxes and import duty too have an impact on the overall prices and influence demand in the market. An increased level of taxes and import duties boosts the costs, and decreases the demand and essentially the price of gold.

* **Positive Economic Data**

  * Growth in GDP, employment, consumer spending : Gold rates during economic downturns change by a good extent. The economic indicators like growth in GDP, employment levels, and consumer spending can signify a change in the spending habits of the retail consumers, which can impact the demand of gold in the market and also the prices. Gold price decrease due to inflation is a very real scenario, as rising inflation decreases the purchasing power of the currency, and makes it unviable for the retail investors to invest in gold, as their money no longer holds the same value. 
  
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Discover key reasons behind gold price drops—from strong dollar and rising interest rates to reduced demand and global economic stability.

Gold has been a valuable commodity for ages now, in the earlier years, it was used as a medium of exchange i.e. currency, and then people started using gold to make ornaments, utensils, etc. as it signified wealth.

When and Why Do Gold Rates Decrease?

Gold Rates

When and Why do Gold Rates Decrease

#### **Introduction**

* Brief explanation of SIP (Systematic Investment Plan) : As the name suggests, SIP is an investment plan, where the investors make regular investments of fixed value to build a larger portfolio over a longer timeframe. How SIP works is that the regular fixed amount invested towards a security by multiple investors is pooled together to purchase a financial instrument by the fund managers. SIP can also be started by an individual investor who wishes to make regular investments with a goal to enjoy cumulative returns generated by asset’s price appreciation during the investment horizon.

* Why Gold SIPs are gaining popularity as an investment option : Gold as a financial asset has generated multifold returns over the last couple of decades. This price appreciation has increased exponentially over the last couple of years alone. And citing rising geopolitical tensions, gold serves to be a safe haven for investors and has a bright outlook. But due to the exponential rise in the price, it has also become difficult for the investors to invest bigger amounts in the metal. Here SIP has been instrumental in enabling investors to continue investing as it can also be started with smaller recurring investment amounts.

* The role of a Gold SIP Calculator in helping investors plan their investments has been really important. The calculator helps the investors understand how different investment amounts over various investment timeframe can pan out for the investor’s overall portfolio. It also helps assess the quantum of investment that would be necessary to meet an individual's financial goals. 

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#### **Understanding Gold SIP**

* How it works: Regular investment in gold over time helps investors compound their investment. Let’s suppose an investor starts a monthly gold SIP of INR 5000; every month as per the gold’s current market value, INR 5000 worth of gold will be added in the portfolio. This over long investment timeframes will help the investor build a bigger portfolio while safeguarding themselves from any big price fluctuation. SIP works wonderfully well when invested in over longer timeframes and in assets which have the ability to generate consistent returns and are also privy to price fluctuations.

* The benefits of investing in gold via SIP (compounded returns, averaging cost) are many\! SIP investors enjoy paying averaged out costs for their investment. i.e. a sudden rise in the price of assets would have miniscule effects on the cost of investment, as the SIP mobilizes investments during periods of low prices too, thus enabling the investor to average out any high price of asset. Also, the investors can enjoy compounded returns on investment made every year. For example if an investor invests INR 1000 in SIP in the first year and makes a 12% return, the subsequent year the investor will earn returns on INR 1120 and the investment made in the subsequent year, thus enjoying the benefit of compounding which is often regarded as the eighth wonder of the world\! 

* Gold SIPs are a preferred choice for many investors \- One of the biggest reasons being the fact that gold is a relatively safe investment, i.e. during highly volatile periods in the equity market, gold can act as a counter balance for the portfolio and help the investor make stable yet positive returns. This makes gold investment a highly potent tool for long term wealth creation. These benefits compounded with the benefits of investing in assets in the form of SIPs increase the magnitude of returns and negate the risks, and have relatively low barriers to invest \-  this makes it a highly desirable investment product for the masses. 

#### **What is a Gold Systematic Investment Plan Calculator?**

* Definition and purpose of a Gold SIP Calculator

The purpose of a gold investment calculator is simple, to help investors in their decision making process by making the calculations around SIP investment in Gold assets easy\! The tool is fairly simple to use, it takes into account assumptions such as expected average annual returns, monthly investment to be made, and the timeframe of investment, and helps the investor calculate the total value of the asset in the long run or over the investment horizon.

* Key features of a typical Gold SIP Calculator

  * Monthly investment amount : The investor needs to key in the monthly investment amount that they’re willing to put in towards gold SIP to get a fairly accurate estimate on the value of investment over the investment period.

  * Gold price projections : This is an assumption that needs to be made as no one can accurately predict the gold price in the future, so accounting to gold’s past returns, an average return is taken into consideration and this helps in calculating the estimated returns on investing in gold SIP.

  * Expected return rates (CAGR \- Compound Annual Growth Rate) : Expected annual rate of returns is a safe assumption on annual returns that are expected to be generated by the virtue of an increase in the gold price. One can make a reasonable assumption based on the historical price trends of gold.

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#### **How to Use a Gold SIP Calculator**

* Step-by-step guide on how to use a Gold or any mutual fund SIP Calculator

  * Inputting the monthly SIP amount : This is the amount that the investor is planning to invest towards a systematic investment plan every month. This is an important parameter to determine the magnitude of returns and the final value of the investment.

  * Selecting investment duration (years) : This too is an important parameter which needs to be decided and punched in by the investor, a reasonable timeframe to be taken into consideration based on the financial goals, and the timeframe to achieve the same.

  * Setting the expected return rate (historical or estimated) : Expected returns cannot be predicted accurately, hence it is recommended to take the past performance of gold price into consideration, and set the expected rate of returns accordingly.

  * Calculating the final corpus value (including gold price appreciation) : Click on calculate. Based on the parameters set like the monthly SIP amount, expected returns, and time frame of investment, the SIP return calculator gives an accurate estimated value of corpus.

#### **Factors Influencing Gold SIP Returns**

* Gold price trends and market volatility : These price trends and market volatility are dependent upon various factors such as geopolitical events, underlying demand, and the performance of equity markets. The price performance is a major determinant of returns that can be generated and what the final corpus will look like.

* Historical performance of gold as an asset class : The historical performance has been exceptional, especially over the last 5 years, gold investment returns have seen an exponential growth, due to several factors such as geopolitical tensions like Russia \- Ukraine war, Israel \- Palestine conflict, coronavirus outbreak and a volatile equity markets throughout the world. These historical performances set an expectation in the mind of the investors and influences future demand for the asset.

* Role of inflation in determining the future value of investments : Inflation too plays a  major role in determining the future value of gold. As net returns of any asset depends upon inflation adjustment, hence it will play a critical role.

* The compounding effect over long-term investments is often regarded as the eighth wonder of the world. A consistent investment over a long investment timeframe can help investors compound their gains and grow their investment corpus exponentially.


#### **Advantages of Using a Gold SIP Calculator**

* Simple and easy-to-use tool for planning investments : The tool can help the investor plan for certain scenarios based on the investment they can do in the gold SIP. This helps the investor make sound investment decisions which can have a long standing impact on their wealth just by participating in a monthly investment plan.

* Helps investors understand the power of compounding : Compounding can help make exceptional returns on investment. One can understand the true power of compounding just by increasing the timeframe of the investment in the gold SIP calculator, and may notice how rapidly the net returns increase with each passing year.

* Provides a clear estimate of future returns : A gold SIP calculator can give the investor a sneak peak into what their investment corpus can look like upon consistent investment in the asset, this is very valuable from the planning perspective.

* Useful for beginners who want to start investing in gold but are unsure about the amount to invest : The tool can help the beginner understand the magnitude of returns that can be generated by being consistent, which can be that final nudge they may be looking for to start investing the gold SIP.

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#### **Common Mistakes to Avoid When Using a Gold SIP Calculator**

* Not factoring in market volatility and gold price fluctuations : These factors can majorly influence the gold returns generated over a short period of time, hence it is absolutely essential to take these into account before setting expectations and making an investment in gold SIP.

* Overestimating the return rate : It is not necessary that the gold asset will replicate their returns generated in the past, there are various factors which may influence the future price, and one must account for scenarios where the asset is unable to generate the desired returns. 

* Ignoring fees (e.g., SIP transaction fees, gold buying/selling fees) : Fees can drive up the cost of capital and essentially decrease the net returns generated by the investments. Hence, it is imperative to take all the fees and taxes into account, as these will most certainly have an impact on the net returns generated on one's investments.

#### **Where to Find Gold SIP Calculators**

* Online tools and websites offering Gold SIP Calculators : Websites like IndiaGold offer one of the best and most accurate gold SIP calculators available online, the gold calculator tool is highly reliable, efficient and gives accurate estimations.

* Mobile apps and platforms for Gold SIP planning : There are several mobile apps available that can help leverage the benefits of an SIP calculator online, one can find plenty of such tools by simply searching for a gold SIP calculator tool on the web

## Conclusion

Gold SIP or Systematic Investment Plan is an investment method in which a fixed amount of funds is invested in gold at predetermined intervals for a fixed tenure, thus generating wealth as well as reducing the price volatility by averaging the gold rate. It is becoming popular in recent times due to excellent historic returns earned by gold as well as due to its being a safe bet under conditions of market volatilities. But at higher gold prices, SIPs allow individuals to invest small, sane amounts, and gold is a feasible option for common investors.

A Gold SIP Calculator is a tool to calculate the potential returns of such investments based on monthly investments, assumed rates of return, and investment tenure. Investors can plan and make decisions about their future fortunes utilizing this calculator. The most critical features of the calculator are entering the amount to be invested, selecting a term, and inserting the assumed rate of return.

Gold SIPs are appealing as they guarantee returns through compounding in the long run, balancing the cost against price fluctuation. However, the returns are susceptible to market volatility, inflation, and the direction of the gold price. The calculator also introduces to first-time investors the benefit of compounding and how regular investing can grow their portfolio size. An individual must consider fees and reasonable return expectations while using such tools. There are several websites like IndiaGold where one can easily find such calculators.

#### **Related Articles**

- **[Will gold prices touch ₹90000 mark in 2025?](https://indiagold.co/blogs/will-gold-prices-touch-90000-mark-in-2025)**
- **[Everything You Should Know About Setting Up an Export Business](https://indiagold.co/blogs/everything-you-should-know-about-setting-up-an-export-business)**


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Calculate your gold investment returns with ease. Use a Gold SIP Calculator to plan monthly investments and see long-term growth potential.

Brief explanation of SIP (Systematic Investment Plan) : As the name suggests, SIP is an investment plan, where the investors make regular investments of fixed value to build a larger portfolio over a longer timeframe

Gold SIP Calculator

Gold SIP Calculator - Check Returns for Gold SIP Investment

## What is Digital Gold?

* ### Digital gold vs physical gold

Contrary to popular belief, digital gold is actually backed by actual physical gold. The only difference being that with digital gold, the asset owner does not get the delivery of the physical gold, rather a digital asset meaning that the investor will enjoy the risk and returns of the actual gold of equivalent value without needing to trade the commodity physically.  

Physical gold on the other hand as the name suggests is the physical form of the metal, which can be purchased and sold in the secondary market in various forms such as bullion, ornaments, utensils, among many others. The primary point of differentiation being that if an individual makes a decision to purchase physical gold, it can be utilized for a host of purposes apart from the returns on investment like using it socially in the form of jewellery, gifts, etc. It is a great asset for someone who wants to begin investing in precious metals, and wants high liquidity and stable returns.

* ### How it’s backed by physical gold

Just like many asset backed securities, even digital gold is backed by actual physical gold. Meaning, the physical gold acts as an underlying asset against which digital gold is traded as an investment asset and one of the most secure investments available for all classes of investors. It negates the need for physical delivery of the commodity, and can be traded freely digitally without the effort of finding another buyer who’d be willing to take physical possession of the asset. It is a great way of investing for the investors with a motive to only invest in gold for the risk and returns benefit it exhibits rather than the desire to use the physical form of the metal. 

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## Why Invest in Digital Gold?

* ### Hedge against inflation

Gold is an excellent long term investment. Historically gold as an asset class has produced stable returns with a low risk profile compared to some other assets that have produced similar returns. This essentially means that money invested in gold has grown steadily over the long term, thus negating the effect of inflation on your investment. If an investor is considering to start investing in gold, they can opt to invest in digital gold instead, as it exhibits similar quality of being a hedge against inflation, and the investor can benefit from an overall reduced cost, as digital gold does not come with costs such as making charges, etc.

* ### Diversification and liquidity

For an intelligent investor, hedging risks is as important as producing high returns. Due to the innate nature of the financial markets, the assets exhibiting high chances of returns often come with a high risk too. To offset this increased risk, one can invest in asset classes with a comparatively lower risk, however decent returns over time. Gold investment provides this opportunity to the investor, as even though the returns may not be on par with the returns produced in the equity markets, the risk is considerably low, which helps in diversification of the portfolio.  

Also, considering the fact that gold has produced stable returns over a long period of time, and has low risk, the asset has seen a consistent rise in the demand in the secondary market. Thus, enhancing the liquidity of the asset class. Hence, it makes perfect sense even for long term investors to start buying gold or digital gold to avail these benefits.

* ### Global market access and security

Gold is one of the few assets which has a global demand. This is due to the fact that the metal is extremely versatile, has many use cases, can be used as a medium of exchange, and also holds cultural significance around many parts of the world. Also, due to the fact that gold has been able to produce stable and good risk-adjusted returns in the past, makes gold investment even more attractive for the investors worldwide.   

These qualities have led to an increased demand across the world, and global access to the asset holder, as an investor can ideally buy/sell the asset anywhere in the world. This coupled with the security that gold provides, makes it one of the most sought after investment opportunities available to the investors.

## How Digital Gold Investments Work

* ### Process of buying, owning, and storing digital gold

The process of buying, owning, and storing digital gold is fairly simple for the investors. There are several trustworthy digital gold investment platforms in India which offer these investment opportunities.    

For instance, India gold online platform offers 24 carat digital gold investment. One needs to simply either visit the website, or download the mobile application, login or create an account, and then select the buy digital gold option. Here the investor will be presented with 2 options, either to buy in Rupees or buy in Grams. In case the user opts for the first option, they will be triggered to punch in the desired amount which is to be invested, and gold equivalent in weight will be reflected. And vice versa, in the case of the second option. Availability of digital gold, and the support offered by such websites in terms of convenience and ease of investment, and the fact that the investor does not have to worry about the gold storage has made gold purchase really easy for the masses.

* ### How gold price impacts digital gold

As highlighted earlier, digital gold is backed by actual gold, the only point of difference being that the investors in digital gold security do not get the physical delivery of the commodity, rather a digital asset which exhibits the same characteristics as the actual physical gold. Due to this reason, digital gold too, gets impacted by the movement in the price of actual gold. As and when the price of physical gold increases or decreases, the underlying asset backed by the physical gold, i.e. digital gold also changes in value. Hence, it is one of the best personal investments as investment in digital gold also benefits from increasing price of the physical gold.

## Strategies for Investing in Digital Gold

* **Long-Term Investment**: Digital gold exhibits all the characteristics of physical gold investment. Which makes it one of the most sought after investment avenues of the modern times. Reason being, that gold carries relatively lower risk, and has produced historically stable and good returns. This makes gold a great investment avenue, not only this, due to its ability to produce returns consistently over longer periods of time, it is a potent tool to hedge against inflation.  
* **Short-Term Trading**: Capitalizing on market fluctuations can help an investor make great returns over a smaller timeframe. This involves buying and selling of your gold by gauging the market on possible increase or decrease in the price of the commodity. If an investor is able to time their trade well, they end up making handsome returns. Although the risk in this trading strategy is high, on the flip side the trading strategy offers high liquidity, which allows the traders to capture even smaller price movements, essentially allowing them to make money in a short period of time. Also this high liquidity negates the investor’s needs for other sources of debt funding like personal loan for home renovation, or even a wedding loan, in a way offering flexibility to fund personal expense  
* **Dollar-Cost Averaging (DCA)**: Consistent small investments. These consistent investments ensure that the investor builds a bigger portfolio over a long timeframe, in other words you invest a little towards purchase of the same asset at fixed intervals. Consistent investments not only helps with regular investment in periods of rising prices, but also helps with averaging the cost of purchase in times of falling prices, this ultimately benefits the investors investing over long time horizons. There are several tools available online which can be leveraged to calculate expected returns over investment horizons. These are tools similar to personal loan emi calculators, giving an insight into the possible returns.

## Costs and Fees

* ### Transaction and storage fees

Investing in digital gold can be really lucrative when considering the risk and possible returns over the investment horizon. What makes it even more attractive is the cost of owning the asset. In contrast to the traditional physical gold where the cost of capital includes the commodity prices per the purity, taxes i.e. 3% goods & service tax (GST), making charges, stone charges, dealer markup, among many others. However, with digital gold, the investor only needs to bear the rate offered and the taxes, thus essentially negating the additional costs and bringing the total cost of ownership down, making it cheaper to invest in the digital gold compared to the physical gold.

* ### Platform fees and cost reduction tips

Gold investments in physical form usually attract additional charges in the form of making charges, dealer markup, etc. the benefit with digital gold investments is that it attracts minimal charges in the form of taxes and platform fee. To ensure that you end up paying the least amount of money in additional costs, one should always prefer choosing the right platform. However, this shouldn’t come at the cost of investing in gold on the less trusted platforms, which can essentially put your investment at risk. Also, it is a good practice to always compare prices of the gold being offered by different platforms, as one may unknowingly end up paying high in the form of gold price rather than additional charges.

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## How to Safeguard Your Investment

* ### Choosing reliable platforms

In contrast to the physical gold, the digital gold owner does not have physical possession of the security, all they’d hold is the digital certification which is backed by the actual gold, and can be traded for the market price. This raises a lot of questions for the less experienced in the digital assets space. And with ever increasing cyber frauds, being a little fearful is natural.  

This is why it is imperative that the investor chooses the right platform to make investments with. These reliable platforms that sell digital gold, most often offer a sense of security, and with their ever evolving security measures, the digital assets remain protected from online frauds, making investing with reliable platforms one of the best gold investments forms available in the market.

* ### Insurance, vaulting, and monitoring investments

Gold is a fantastic investment, which can not only help the investor produce returns, mitigate portfolio risk, etc. but due to its high liquidity can prove to be a great option to arrange money from. Having gold can diminish the need to keep instant personal loan apps in your mobile as it can support in times of need.  

There are different ways to invest in gold, and all come with certain risks. Apart from choosing the right platforms and investment apps, there are certain measures that an investor can take to ensure that their investment is safe from other types of risks. While price volatility risk is the innate nature of the asset, hence cannot be avoided, but other associated risks such as theft, fraud, and market crash risk can be avoided.  

An investor can insure their investments to protect the same from any sort of fraud, or theft. Apart from this, regular monitoring of investments can help the investor make appropriate decisions in the best interest of the portfolio to avoid any potential loss. 

## Conclusion

Digital gold is a gold-backed investment in which investors buy digital units equivalent in value to physical gold but without physical delivery. Physical gold is used up in other forms such as jewelry, but digital gold offers the same advantage of investment risk, return, and value linked to the underlying gold at no extra cost such as making charges. It is thus more affordable and convenient.

Digital gold is the best for inflation hedging, portfolio diversification, and liquidity as it has a global demand. It is secured by physical gold, so the price fluctuates with the price of physical gold. Digital gold is simple to buy, hold, and store, and it is accessible on several platforms where one can invest in grams or rupees.

Investment schemes include fixed return long-term investment, trading for profit on a short term from price fluctuation, and dollar-cost averaging for making investments in the form of frequent small investments over a long term. Digital gold features low fees involved in transactions in comparison with physical gold that entails attached charges in the form of taxes and making charges.

For investment protection, good platforms have to be selected and insurance, vaulting, and monitoring have to be applied. When properly managed, digital gold provides security, world access, and an adjustable form of investment for both novice and seasoned investors.

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- **[SBI Gold Loan Calculator](https://tools.indiagold.co/sbi-gold-loan-calculator)**

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Discover the ultimate guide to digital gold investments. Learn to buy, store, trade, compare platforms, and explore strategies for growth and diversification.

Digital gold is a modern investment option backed by physical gold. This guide explores the best platforms, strategies, and apps for investing in digital gold.

A Comprehensive Guide to Digital Gold Investments: Strategies, Platforms, and Best Apps

Discover the ultimate guide to digital gold investments. Learn how to buy, store, trade, and compare platforms while exploring strategies for growth and diversification.

Digital Gold Investment Guide

How to Invest in Digital Gold

### **Introduction**

* Brief explanation of Sovereign Gold Bonds (SGBs)

  * Issued by: Reserve Bank of India (RBI) on behalf of the Government of India. The SGBs are issued on the basis of underlying physical gold held by the government. 

  * Purpose: the sovereign gold bonds are an alternative to buying physical gold for the investors. Investment in SGBs offer numerous benefits which are discussed in detail further in the article.

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* Benefits of SGBs

  * Interest income : One of the biggest advantages of sovereign gold bonds (SGBs) is the fact that these financial instruments provide regular income in the form of interest earned on the bonds. This magnifies the scale of returns as it is coupled with the price appreciation of the underlying gold.

  * No storage issues : Another SGB investment benefits is that as compared to physical gold, the investor doesn’t have to worry about the storage of the gold. This makes it more convenient and cost effective to enjoy the financial security of gold while not worrying about the storage issues.

  * Capital gains tax exemption (if held till maturity) : Another fantastic feature of SGBs is that the investor enjoys the exemption from capital gains tax if they hold the instrument till maturity. Other financial instruments attract Short term capital gains (STCG) or long term capital gains (LTCG) depending upon the investment timeframe, however holding SGBs till maturity saves this cost and boosts overall return on investment.

### **Purpose of the Calculator**

* Help investors estimate:

  * Total returns from an SGB investment : The main purpose of any financial calculator is to determine the numeric value of the returns. The same holds true for Sovereign Gold Bond (SGB) calculators too, these calculator’s main purpose is to help calculate the total returns based on the numeric variables as input by the user.

  * Interest earnings over the holding period : Sovereign Gold Bonds (SGB) offer price appreciation as per gold’s price movement along with fixed returns to the investor. Making the interest earnings based on the holding period and the applicable interest rates is something that the SGB calculator can help with. Aiding in SGB interest rate calculation is one of the major functions of such calculators.

  * Maturity value based on gold price assumptions : Sovereign Gold Bonds come with a maturity date. This is when the financial instrument ceases to exist and the maturity value is paid to the investor. SGB value calculators can help determine the value of the SGB upon maturity. 

* Useful for:

  * Planning investments : One of the most critical uses of Sovereign Gold Bonds (SGB) calculator is to aid in the investment planning of the investor. These calculators can help take into account various variables and determine the viability of the investment, which can help with creating an investment planning which most aligns with the investor’s investment goals.

  * Comparing with other gold investment options : Another use of the SGB calculator is to do a comparison between scenarios where the investment was made in the SGBs vs the other gold investment options. The calculator can help paint a clear picture on what the initial investment would look like between SGBs and other gold investment products over the investment horizon. While this is highly dependent upon estimates and expected returns, however this is a fairly reliable way to do a comparison between SGB maturity value vs other investment types in the same underlying asset.

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### **Inputs Required**

* Investment amount (INR) : Investment amount is one of the most important parameters required for a SGB calculator to be able to give results, as the output is highly dependent upon the investment amount citing the fact that the principal determines the returns made in the terms of amount.

* Issue price per gram of gold : This is the price of gold at which the bonds were issued. It captures the current gold price per gram and the basis that the bonds are issued, as it is a deciding factor of the price of the bond at the time of issue/purchase. 

* Investment date / tenure (8 years default; premature redemption at 5, 6, 7 years optional) : The investment date or tenure helps determine the timeframe during which the investor remained invested in the sovereign gold bond scheme. It helps determine the return generated during the total period of investment.

* Expected annual gold price appreciation (in %) : this is a fair estimation at which the gold price in the market is expected to rise. This input helps in determining the total returns that are expected to be generated over the investment timeframe, apart from the annual interest rates that will be paid out by the issuing authorities in the form of fixed returns. It is important to note that there is no guarantee that the gold price will rise as expected. However, it helps in estimating expected returns based on past performance of gold.

* Annual interest rate (currently 2.5%) : Annual interest rate is disclosed at the time of issue, this is the interest return that the gold bonds will be paying out to the investors, this is over and above the returns made in the form of price appreciation. 

* Redemption year (if premature exit is chosen) : Redemption year is when the bonds will be liquidated and the investor will be paid back the money. This is a crucial input which is required in determining the total timeframe of investment, and essentially helps in determining total returns that can be generated by the gold bond investment.

### **Outputs Displayed**

* Number of grams purchased : Based on the gold rate during the time of investment and the total investment made in the gold bond scheme, the calculator is able to calculate the total grams of gold purchased by the virtue of investment in the SGB scheme.

* Total interest earned (simple interest) : The interest component is disclosed at the time of issue of SGBs. Based on the applicable interest rates, and the timeframe of investment, the SGB interest calculator would be able to give an output on the total returns made by interest income alone.

* Estimated value at maturity (based on gold price growth) : This output is based on input parameters such as the timeframe of investment, and the expected price appreciation of gold. 

* Total returns (absolute and annualized) : The total returns take into account the returns generated in the form of interest income as well as the price appreciation of gold. The total returns will be calculated as an absolute figure i.e. total amount that is expected to be made over the investment horizon, and the annualized returns in the form of percentage of returns on the total investment.

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### **How To Read The Outputs**

* Value over time, interest vs capital gain : The best way to read the output and make sense of the results to calculate SGB returns is to take into account the value over time. I.e. the core value of the investments in the SGBs with separate components of both interest income and the capital growth. 

* Scenario comparison: Another way to read the output is to compare scenarios by taking into account different growth rates in the gold price. This can help analyze what the investment will look like in each scenario, and can help make an informed decision with regards to investing in SGBs.

### **FAQs Section**

* What is the tax treatment of SGBs?

A \- SGBs provide both interest income as well as the capital appreciation benefit. Since these instruments offer returns in both the forms, these also attract different taxes. The interest income from the SGB instrument is taxed as per the investor’s tax bracket, the returns made in the form of capital appreciation are tax exempt in an event where the instrument is held till maturity; in case the investor decides to sell the SGBs in the secondary market before the maturity, then the applicable capital gains tax will be applicable. 

* Can I redeem SGBs early?

A \- Yes, the investor can choose to divest in the sovereign gold bonds (SGBs) before maturity. One can see these instruments in the secondary market, however by doing so the investor will attract the capital gains tax which may diminish the overall sovereign gold bond returns.

* Is interest compounded?

A \- No, the interest income from the SGBs are not compounded. The interest is paid to the investor at a fixed interval as laid out in the contract.

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Calculate returns on Sovereign Gold Bonds with our SGB calculator. Estimate interest, maturity value, and total gains easily.

Issued by: Reserve Bank of India (RBI) on behalf of the Government of India. The SGBs are issued on the basis of underlying physical gold held by the government.