Types of Gold Investments: A Complete Guide for Indian Investors

Gold has always been a trusted store of value in India. But today, investors are no longer limited to buying jewellery or coins there are modern, regulated and more convenient ways to invest in gold. With so many options available, choosing the right one can feel confusing. This blog breaks down the types of gold investment in simple terms so you can make informed, purpose-led decisions rather than reacting to trends or price movements.

Whether your goal is long-term diversification, short-term accumulation, or gradual buying for a future event, understanding how each gold format works can help you choose the right one for your needs.

The Role of Gold in Building a Resilient Portfolio

Gold plays an important role in an investment portfolio because it behaves differently from traditional asset classes like equity. It acts as a hedge during global uncertainty, protects purchasing power during inflation, and brings stability during periods of volatility. According to the World Gold Council, global demand for gold has remained strong, driven by central bank buying, geopolitical tensions, and currency fluctuations.

But the format in which you invest makes a big difference to your experience, liquidity, convenience and long-term outcomes.

Types of Gold Investments

1. Physical Gold: 

Physical gold, whether bought as jewellery, coins, or bars continues to hold deep emotional value for many Indian households. However, from an investment point of view, it comes with several practical limitations. Making charges significantly increase the cost of jewellery and can reduce resale value. There is also the ongoing risk of storage and theft, and physical gold does not generate any regular returns, it only appreciates in value based on market price movements.

Another factor to consider is liquidity. Selling physical gold often requires purity checks and depends on the buy-back terms of the jeweller, which may not always be favourable. Although India remains the world’s second-largest consumer of gold, more investors today prefer financial forms of gold because they offer transparency, convenience, and lower friction.

Best for: Emotional purchases, occasions not ideal for long-term investing.

2. Digital Gold: 

Digital gold has become popular among younger investors and first-time buyers due to its simplicity and accessibility. Platforms like MMTC, SafeGold, and Augmont allow you to buy 24K gold online without making charges or the need to store it physically. Investors can even start with very small amounts sometimes as low as ₹100 making it attractive for gradual accumulation.

Purchasing and redemption are fully digital, which adds convenience, but digital gold is not regulated by SEBI or RBI. Additionally, the buy-sell spread (typically 3–6%) is an important factor to consider, as it impacts overall cost. Digital gold works well if you are accumulating gold slowly for future jewellery purchases, gifting, or short-term needs.

Best for: Small-ticket buying, short-term accumulation, gifting.

3. Gold ETFs:

Gold Exchange-Traded Funds (Gold ETFs) offer one of the most regulated and transparent ways to invest in gold. They are supervised by SEBI, trade on stock exchanges, and allow investors to buy or sell units quickly. Gold ETFs track domestic prices closely and are backed by physical gold of 99.5% purity, giving investors exposure without the risks or costs of physical ownership.

There is no GST on purchasing ETF units, and according to NSE data, gold ETF assets have grown steadily as more investors prefer regulated investment options. Gold ETFs also integrate seamlessly into a diversified investment portfolio.

Best for: Experienced investors, long-term diversification, and liquidity.

4. Gold Mutual Funds: 

Gold mutual funds make gold investing accessible for anyone who does not want to trade ETFs or open a Demat account. These funds invest in gold ETFs on behalf of investors, offering a simple and convenient entry point. SIPs can be started with small amounts, making it suitable for beginners or for anyone who prefers a systematic approach.

Because these funds are professionally managed, investors get both diversification and expertise. They are particularly useful for people who want to accumulate gold over time without dealing with the operational aspects of ETF buying and selling.

Best for: New investors, SIP-based gold accumulation, long-term holders.

Tax on Buying and Selling Gold

When you buy gold, no income tax is applicable. However, a goods and services tax (GST) of 3% is levied on the purchase of gold, and 5% GST is charged on making charges. On the other hand, when you sell gold, you are required to pay income tax.

Tax on gains from physical gold

If you hold physical gold for less than or equal to 24 months, you are required to pay short-term capital gains (STCG) tax on gold, which is levied at the slab rate.

If the holding period is more than 24 months, a flat 12.5% tax is applied, and the seller won’t get the indexation benefit.

Tax on gains from ETFs and gold mutual funds

Gold exchange-traded funds (ETFs) invest in gold of high purity. Gold mutual funds invest in gold ETFs.

If the holding period of gold ETFs and gold mutual funds is less than or equal to 12 months, STCG tax will be applied on the gains. In such a situation, the gains will be taxed at slab rates for the taxpayer.

If the holding period is more than 12 months, the gains will be taxed at 12.5% flat without the indexation benefit.