Investing in Gold
July 31, 2026
Vinay’s friend told him that he invests in gold regularly as part of his portfolio. Vinay thinks that he and his wife already have some gold jewellery, which they received in their wedding. He is wondering whether any additional investments in gold are required.
Let’s look at why gold matters, and how you can actually invest in it.
Why is gold important?
Gold is a precious metal with usage in jewellery as well as industries like electronics, aerospace components, and medical devices. It is a store of value accepted universally and is purchased by all major central banks of the world to diversify their holdings and hedge against inflation.
Gold is considered as a good asset for hedge against inflation due to following:
- Cannot be printed: Unlike paper money, governments and central banks cannot create or print more gold out of thin air
- Preserves purchasing power: When rising inflation devalues cash, the cost of gold priced in that weaker currency typically goes up, keeping your real buying power stable
- Safe-haven demand: During high inflation and economic stress, investors lose faith in traditional markets and move their money into physical assets like gold, driving its price higher
Why should a regular investor buy gold?
In your personal portfolio, gold acts as a good asset for diversification as it has low correlation with equities. Typically when the economy is down and markets are falling, money moves to gold leading to a rise in its prices, thus protecting your portfolio.
Following table provides historical returns on Nifty 50 and Gold in India:
| Year | Nifty 50 | Gold, India (₹/10g, 24K) |
|---|---|---|
| 2015 | −4.1% | −6% |
| 2016 | +3.0% | +11% |
| 2017 | +28.6% | +3.6% |
| 2018 | +3.1% | +6% |
| 2019 | +12.0% | +21% |
| 2020 | +14.9% | +28% |
| 2021 | +24.1% | −4% |
| 2022 | +4.3% | +14% |
| 2023 | +20.0% | +13% |
| 2024 | +8.8% | +21% |
| 2025 | +10.5% | +65% |
As you can see, in years when Nifty 50 did not grow as much (2016, 2022, 2024) gold provided good returns, stabilizing the portfolio.
But like Vinay, you may think you already have gold in the form of jewellery, so why buy more gold. While this is true, jewellery holds a strong emotional value in Indian households. People pass it down generations as a heirloom and hence selling jewellery is considered somewhat of a last resort.
Hence it is recommended to invest in gold separately as well as part of your portfolio.
Ways to buy gold
There are 4 primary ways for you to buy gold: physical gold, gold ETF/FOF, Electronic Gold Receipts and digital gold.
| Investment Route | What it is | Liquidity | Pros | Cons |
|---|---|---|---|---|
| Physical Gold | Buying investment-grade gold coins/bars from banks, mints, or jewellers | Low–moderate; resale at a discount to market price | - Tangible asset - No counterparty risk - Can be pledged easily for loans | - 3% GST on purchase - Making/minting charges - Storage & theft risk - Resale often below market rate |
| Gold ETF/FOF | Exchange-traded funds that hold physical gold or Mutual funds that invest in Gold ETF units | High; trade anytime during market hours | - Most tax-efficient (12-month LTCG threshold in case of ETF, shortest of all options) - No GST - SEBI-regulated, backed by real bullion | - Small expense ratio/tracking error - Price can occasionally deviate slightly from spot gold - Need trading account for ETF |
| Electronic Gold Receipts (EGR) | SEBI-regulated, exchange-traded product representing vaulted physical gold (via NSE/BSE) | Moderate; still a relatively thin, low-volume market | - Fully SEBI-regulated with vault-level transparency, unlike digital gold - No GST - Convertible to physical gold if needed | - Low trading volumes/liquidity currently - Less well-known, fewer brokers support it seamlessly |
| Digital Gold | Buy fractional gold online (Paytm, PhonePe, MMTC-PAMP, Augmont, etc.), held in the seller’s vault on your behalf | Moderate; sell back to the platform, not a public market | - Very low entry amount - Easy to buy via UPI apps - Can convert to physical gold or jewellery later | - Not regulated by SEBI or RBI: SEBI issued a formal advisory (Nov 2025) flagging this gap - Counterparty risk if the platform fails - Buy-sell spreads and storage fees - 3% GST |
Hence among all these options, Gold ETF or Gold FoF are considered the best for retail investors due to no GST, no hassle of storage, high liquidity, and peace of mind as they are SEBI regulated.
Recommendation
Gold has been an important commodity over centuries. You should consider adding gold as part of your portfolio for diversification and as an insurance against inflation. Investing in gold through Gold ETF or Gold FoF is the optimal way for most retail investors. So if you are in a similar situation as Vinay, the answer is: keep the jewellery, but also start a small monthly SIP in a Gold ETF.