Every way to own gold, priced properly
Jewellery loses 15% at the door. Sovereign Gold Bonds pay you 2.5% to hold them. The gap between the best and worst way to own the same metal is enormous.
Gold does one useful job in a portfolio: it tends not to move with equity, and it holds value through currency weakness. Five to ten per cent is a defensible allocation.
What almost nobody prices is that the same metal, bought five different ways, produces returns that differ by several percentage points a year — before the price of gold does anything at all.
Jewellery is not an investment
Making charges run 8% to 25% of the metal value, depending on the design and the shop. That money is gone the moment you leave; nobody pays you for the craftsmanship when you sell.
GST at 3% on the total, including the making charges.
Purity loss. Most jewellery is 22 carat, or 91.6% gold. It is bought at a price reflecting the design and sold at a price reflecting the metal content.
Selling costs. Jewellers typically deduct a further 5% to 10% on buyback, and often only against a purchase from the same shop. An independent gold buyer pays close to the melt value.
Put together, jewellery starts roughly 15% to 30% behind the metal price and stays there. On a ten-year holding that is 1.5% to 3% a year of drag, permanently.
None of this is an argument against buying jewellery. It is an argument against counting it as an investment allocation.
Coins and bars
Better, and still not good. Making charges fall to 2% to 8%, GST is still 3%, and you take on storage — a bank locker at ₹1,500 to ₹5,000 a year, or the risk of keeping it at home.
Buyback is where it bites. Banks sell gold coins but are not permitted to buy them back. Jewellers will, at a discount, usually against a purchase.
Total friction: roughly 5% to 12% round trip, plus storage. Gains are taxed at 12.5% after 24 months.
Sovereign Gold Bonds
The clear winner for anyone whose objective is exposure rather than possession.
No making charge and no GST. You buy at the reference price of 999-purity gold.
2.5% annual interest, paid half-yearly on the issue price, on top of whatever the metal does. Over eight years that is a meaningful addition — roughly 20% of the original investment in cash payments, before any price movement.
Capital gains tax-free at maturity. Held the full eight years and redeemed, the entire capital gain is exempt. Nothing else in gold comes close.
No storage cost and no purity risk. It is a book entry backed by the Government of India.
The constraints are real. The tenure is eight years, with an exit option at years five, six and seven on interest payment dates. Sold earlier on the exchange, gains are taxable normally and the market price often sits below fair value because secondary market liquidity is thin. The interest is taxable at slab rates throughout. And issuance is at the government's discretion — there is no guaranteed window, which is the practical reason many people end up elsewhere.
Gold ETFs and funds
The right answer when you want liquidity or when no SGB tranche is open.
Expense ratios of 0.4% to 0.8% a year, no making charges, no GST on purchase, trades like a share on any trading day. Gains are taxed at 12.5% after 24 months.
The annual expense is the cost of the flexibility. Over eight years, 0.5% a year compounds to about 4% of the investment — against SGB's positive 2.5% a year plus tax exemption. The gap between an ETF and an SGB held to maturity is roughly 3% a year.
Gold mutual funds are funds of the ETFs, adding a further layer of expense. They exist for SIP convenience and for people without a demat account.
Digital gold
Sold through payment apps in small amounts. Convenient and poorly regulated — it sits outside SEBI's and the RBI's purview, with a 3% GST on purchase, a spread of 3% to 6% between buy and sell prices, and a storage limit after which you must take delivery or sell.
The convenience is real, and the friction is worse than an ETF's for no compensating advantage. It is a reasonable way to accumulate ₹500 at a time and a poor way to hold a portfolio allocation.
Side by side
| Entry cost | Annual cost | Annual income | Tax at exit | |
|---|---|---|---|---|
| Jewellery | 11–28% | Storage | None | 12.5% after 24m |
| Coins/bars | 5–11% | Storage | None | 12.5% after 24m |
| Digital gold | ~3% + spread | None | None | 12.5% after 24m |
| Gold ETF | ~0.1% | 0.4–0.8% | None | 12.5% after 24m |
| SGB to maturity | 0% | 0% | +2.5% | Nil |
What this means in practice
For a portfolio allocation you intend to hold for eight years or more, SGBs at issue are close to unarguable. Subscribe when a tranche opens; there is no reason to wait for a better gold price if the allocation is a policy decision rather than a bet.
If no tranche is open or you need liquidity, use an ETF. The 0.5% is a fair price for being able to sell on any Tuesday.
For a wedding, buy jewellery, enjoy it, and do not put it in the asset allocation spreadsheet. It is consumption with resale value, which is a different thing from an investment.
And whatever the wrapper, keep the allocation to 5% to 10%. Gold produces no earnings and no dividends; its entire return is someone paying more for it later. That is a reasonable diversifier and a poor core holding.
Published by FinClamp. This guide is information, not financial advice — see the disclaimer.