Indian households hold gold for reasons that have little to do with spreadsheets: weddings, festivals, safety, tradition. As an investment, gold behaves differently from shares and bonds. It pays no dividend and no interest, and its price can stay flat for years. What it offers is a cushion. It often holds its value when other assets struggle, and it protects against a weaker rupee.
How much to hold
Many planners suggest somewhere between 5 and 10 per cent of your investments. Beyond that, gold starts to drag on long-term growth. Count only what you hold as an investment. Jewellery you will wear and keep is a different matter, and including it can give you a false sense of how much you already own.
The options
| Form | How you hold it | Main advantages | Watch out for |
|---|---|---|---|
| Sovereign Gold Bond (SGB) | Government security, in grams of gold | Pays 2.5% a year on the issue price on top of gold's price change; government-backed | Long maturity; early exit only on specified dates or via the exchange, where liquidity can be thin and prices can sit below gold |
| Gold ETF | Units in your demat account | Tracks the gold price, easy to buy and sell on exchanges, small annual charge | Needs a demat account; small tracking gap |
| Gold fund (fund of funds) | Mutual fund that invests in gold ETFs | No demat needed; SIPs are possible | Two layers of cost |
| Digital gold | Held with an app or seller | Tiny purchase amounts | Not regulated like a security. Spreads can be wide, and you depend on the seller's vault and honesty. |
| Physical coins and bars | You store them | You hold the real thing | Making charges, storage and purity checks |
| Jewellery | You wear or store it | Use and sentimental value | Making charges of several per cent, deductions on resale; a poor investment |
The state of SGBs
For years, SGBs were the best-regarded way to hold gold, thanks to the 2.5 per cent interest and favourable tax treatment on redemption at maturity. The government has not been issuing new tranches in recent times, so new buyers can only get SGBs from the secondary market. That means checking the price against the underlying gold value, the interest still payable and the remaining term. Tax treatment of gold instruments has also been changed more than once. Check the current rules before you buy or sell anything.
Gold ETF or gold fund?
If you already have a demat account, a gold ETF is usually the simplest and cheapest way. If you don't, or if you want to invest through a SIP, a gold fund of funds is easier though costs a little more. Compare the expense ratio and the tracking difference.
About digital gold
Digital gold is easy to buy in a few taps, and that convenience is why it's popular. But it generally isn't regulated like a mutual fund, ETF or SGB, and the regulator has warned investors about this. If you use it, keep amounts small, use a well-known seller and treat it as a convenience, not a core holding.
Buying jewellery wisely
If you do buy jewellery, look for BIS hallmarking, which certifies purity. Ask for the making charge and wastage in writing. Compare the rate with the day's market price. Keep the bill, because resale value depends on proof of purity and weight.
Gold in the bigger picture
Decide your target share (say 5 to 10 per cent). Buy gold ETF units or a gold fund through a monthly SIP. Rebalance once a year. If gold rises sharply and now makes up more than you wanted, sell a bit and move it back into equity or debt. That discipline of selling after a rally is difficult, and it's the real benefit of having a target.
Gold prices are volatile and have long flat or falling periods. Rules on SGB issuance, taxation and the regulation of digital gold change often. Verify current details with RBI, SEBI and the Income Tax Department.
This article is for general education and is not personal advice. Found a mistake or an out-of-date number? Tell us and we will check it.