How to Invest in Gold in India - Reasons & Risks Involved

Should You Consider Gold As an Investment Option in India?

Gold is considered one of the best forms of investments in India. From its significance being tied to culture and religion, every family or household has gold of some sort. But what if you want to know if gold is a safe and good investment?

That’s what we’re here to shed light on.

Why One Should Have Gold in Their Investment Portfolios?

If you want to know what the advantage of gold investment is or why you should keep some form of gold in your investment portfolio, here are the following reasons:

1. Does Not Lose to Inflation

Inflation is when the prices of products, everyday goods and services go up according to fluctuations, growth, or changes in the economy. Product values which were once high before sometimes depreciate (such as in the case of second-hand cars) but not gold. In fact, you’ll find that gold keeps up with inflation and doesn’t lose or fall below it. When the price of your currency goes down, gold’s prices will still stay up.

2. It’s Easy to Buy

Gold is one of the best types of tangible assets. It’s easy to buy, is available in different forms or types, and buying it isn’t time-consuming or loaded with hassles like real estate.

gold is easy to buy

3. It Diversifies Your Portfolio and Reduces Volatility

When prices of other major asset classes like shares and equities’ go down, you’ll find that gold prices have zero to a negative correlation with them. This way, your portfolio doesn’t suffer from volatility or market fluctuations by a wide margin, thus giving you the advantage of gold investment when you have some gold in it. Returns brought by asset classes can get affected by micro and macro-economic factors, but not gold.

4. Gives You Liquidity

Unlike various assets like real-estate or shares where you have to wait a period before being able to redeem or sell, gold doesn’t have such restrictions. You can sell whenever you want, anytime you want, but with subject to market prices and the current denomination. You also have the option to mortgage your gold assets and borrow loans against them in times of money crunches.

5. Hedge Against Geopolitical Situations

From political turmoil to the chance of a country launching a nuclear crisis, gold stands the tests of time when it comes to geopolitical factors.

How to Invest in Gold in India With Different Options?

You can invest in gold in two ways – physically or on paper. We’ll cover both of them below, including your sub-options for each.

1. Physical Gold

Physical gold is gold you can buy in person or store away in your home or either in lockers or at the bank. Below are the three types of physical gold available for purchase.

  • Jewellery

Buying jewellery is the easiest way to invest in gold. However, there will be making charges involved which may cost you up to 20% of the total invested amount.

Visit any reputed jewellery dealer and buy gold jewellery items like necklaces, pendants, earrings, or gold-plated products from there.

  • Gold Coins

Gold coins are more convenient to buy since you can resell them in an instant. You can buy them from banks or individual jewellery dealers. We recommend buying from jewellers for investors because, although banks sell you gold coins, they won’t be willing to buy it back which isn’t the case for jewellers. Is buying gold coins a good investment? Yes, but only when you buy it from dealers and not banks.

  • Gold Savings Scheme

A gold savings scheme is available in every jewellery store (or in reputed ones, at least). The gist of it is that you invest money for a tenure of anywhere between 6 to 24 months. At the end of the tenure, you get to use the invested money to buy any jewellery items you want, plus you get a discount on them. Gold Savings Schemes are a fantastic way to invest in gold in small increments until the amount becomes a lump sum and you cash it out.

you can buy gold in the form of coins or jewellery

2. Paper Gold

Paper gold is one of the best ways to invest in gold in India since you don’t have to worry about making charges, storing, or keeping the gold physically safe. Here are the options available for buying paper gold below.

  • Gold ETF (Exchange Traded Funds)

Gold ETFs are bought at stock exchanges like the NSE and BSE. You buy units and sell them later, except you don’t hold any physical gold. What you buy on paper represents the underlying assets and mirrors the price of gold according to market conditions. To start investing, you need a DEMAT Account and have to pay a commission fee to a registered broker every time you buy or sell units through him. Additionally, a low expense ratio of up to 1% is involved in managing these funds.

  • Sovereign Gold Bonds (SGB)

If you’re wondering how to invest in gold bonds in India, then Sovereign Gold Bonds are your answer. These are sold by the Government and are not always available, with sales happening every 2 to 3 months. The buying window lasts for a week and closes immediately after that. It’s a substitute for physical gold and since it’s paper gold, there are no buying, making, or storing charges.

  • Digital Gold

Mobile wallets like PayTM and GoldRush by Stock Holding Corporation of India let investors buy digital gold online. There are also other options like the Motilal Oswal’s Me-Gold under the joint banner of MMTC-PAMP that lets you buy gold in grams online.

digital gold

What Are Risk Factors Involved in Gold Investment?

Every investment has its list of pros and cons. Here are some disadvantages of gold investment for investors-

1. It Simply “Looks at You”

As investment tycoon Warren Buffet has said, when you buy gold and store it away, it just sits. It doesn’t give you monthly or periodic returns like dividends, and you only make a profit when the prices go up, and you sell.

2. Gold Prices Aren’t Reliable Investment Markers

Gold prices have a zero to negative correlation when compared to equities and bonds. However, when the economy booms and the value for equities and these bonds go up, gold prices may take a hit. In simple terms, gold prices are inversely proportional to mutual funds, bonds, government securities, and equity markets.

3. Purity Problems

If you’re buying gold items from non-reputed or local jewellers, the purity could be a problem. You could end up buying gold-plated items and not genuine pure gold ones. The hallmark testing is a solution to this, but it checks for just a fraction of the gold in items, making it difficult.

4. Making and Storing Charges

You have to pay making charges, and if you’re storing in lockers, storage charges too. These take a hefty cut of your investment money.

5. Susceptible to Robberies

This isn’t an investor-only problem but a life problem. If you live in areas where crime rates are high and you have physical gold on you, you could get mugged and lose it all in an instant.

susceptible to robberies

6. Lower Resale Value

When you sell the physical gold you bought, you lose out 5 to 10% of the market price’s amount plus face deductions of making charges. And if the gold prices were lower than at the time when you bought it, you end up losing money.

7. No Tax Benefits

Unlike mutual funds, equities and other market assets, you don’t get any tax benefits when it comes to gold investments.

8. Government Risk

If you invest in physical gold in a warehouse as a private investor, you might lose everything if the government decides to just show up one day and raid that place.

9. Sentimental Asset

In India, buying gold is a sign of prosperity while selling it means financial crises or difficulties. The meaning behind it being a liquid asset goes away when you think about that.

10. Nominal Returns

When gold prices go up, they don’t go up much by a wide margin like equities or mutual funds. You don’t profit much in that sense.


Here are some of the most commonly asked question with regard to investing in gold.

1. Which Is the Best Month to Buy Gold in India?

Historical data from markets indicate that gold prices tend to fall every year around March, making it the best time to buy.

2. Is Gold Investment Better Than Silver Investment?

It depends on the losses or changes in gold and silver prices.

3. How Much to Invest in Gold?

We recommend investing no more than 5 to 10% of your portfolio’s worth in gold.

4. Is Gold a Good Investment During Inflation?

Yes. Gold usually does well when inflation occurs in the economy.

Before you buy gold, take a look at the prices and think about your investment horizon. If you’re buying gold solely for investing, we suggest balancing your portfolio by dedicating a small percentage to it and not more.

Also Read:

Reasons Why Real Estate is a Great Investment
How to Save and Enjoy Your New Wealth Responsibly
Best Investment Options Available for You in India

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