Gold has always been part of Indian households, but today you can own it in several forms: gold mutual funds, gold ETFs, Sovereign Gold Bonds (SGBs) and physical gold. Each has different costs, liquidity and tax rules. This guide on gold mutual funds vs gold ETF vs SGB vs physical gold puts them side by side so you can understand the trade-offs clearly.
Key takeaways
- Gold ETFs trade on the stock exchange and need a demat account; gold mutual funds do not.
- Gold mutual funds are usually funds of funds that invest in gold ETFs, which makes SIPs easy.
- No new Sovereign Gold Bonds have been issued since February 2024; existing bonds continue till maturity.
- Physical gold carries 3% GST, making charges, purity and storage costs.
- After the 2024 and 2025 changes, long-term gains on gold ETFs, gold funds and physical gold are generally taxed at 12.5% without indexation, with different holding periods.
- Gold can play a diversification role, but its price can also fall for long periods.
The four ways to own gold
1. Gold ETFs
A gold exchange traded fund invests mainly in physical gold of standard purity, held with a custodian on behalf of investors. Units are listed on NSE and BSE, and their price moves with domestic gold prices.
- You need a demat and trading account.
- You buy and sell at live market prices during trading hours.
- Costs include the expense ratio, brokerage and the bid-ask spread.
- Liquidity depends on trading volume; popular gold ETFs usually trade close to their NAV.
2. Gold mutual funds (gold funds of funds)
A gold mutual fund usually invests in one or more gold ETFs. You buy and redeem units directly from the fund house at the end-of-day NAV.
- No demat account is needed.
- SIPs of small amounts are easy to set up.
- Total cost includes the fund’s own expense ratio plus the underlying ETF’s expenses.
- An exit load may apply if you redeem within a set period.
You can explore this category on the Quantsgrow gold funds page.
3. Sovereign Gold Bonds (SGBs)
SGBs are government securities denominated in grams of gold, issued by the RBI on behalf of the Government of India.
- Tenure of 8 years, with a premature redemption option from the fifth year on interest payment dates.
- Fixed interest of 2.5% per year on the initial investment, paid half-yearly.
- Redemption value is linked to the gold price at that time.
- Capital gains on redemption by an individual are exempt from tax; interest is taxable.
Current status: the last tranche, SGB 2023-24 Series IV, was issued in February 2024. No new tranches have been issued since, and after Budget 2025 the Finance Ministry described the scheme as a costly form of borrowing, signalling that it is being wound down. Existing bonds continue to pay interest and will be redeemed as per their terms. Some series are listed on the stock exchanges, but trading volumes can be low and prices can differ from the underlying gold value. For the latest official position, check RBI press releases.
4. Physical gold
Coins, bars and jewellery remain the most familiar form of gold.
- 3% GST applies on purchase.
- Jewellery includes making charges, which are usually not recovered when you sell.
- BIS hallmarking is mandatory for most gold jewellery, which helps verify purity.
- You need to manage storage, insurance and safety.
Cost comparison: a ₹1 lakh example
Here is a simple example to show how costs differ. The making charge and expense ratio used are assumptions, for illustration only.
- Gold coin worth ₹1,00,000: add 3% GST of ₹3,000, so you pay ₹1,03,000.
- Gold jewellery with ₹1,00,000 of gold and an assumed 10% making charge of ₹10,000: add 3% GST on ₹1,10,000, which is ₹3,300, so you pay ₹1,13,300.
- Gold ETF or gold fund: no GST on purchase; an assumed total expense ratio of 0.5% per year costs about ₹500 a year on ₹1,00,000.
If the jeweller pays only the gold value when you sell, gold prices would need to rise by about 13.3% just for the jewellery buyer to break even. This is why many investors treat jewellery as consumption rather than investment.
Gold mutual funds vs gold ETF vs SGB vs physical gold: comparison table
| Feature | Gold mutual fund | Gold ETF | SGB | Physical gold |
|---|---|---|---|---|
| Demat needed | No | Yes | Only for exchange trading | No |
| How to buy | Fund house at NAV | Stock exchange | No new issues; existing series on exchange | Jeweller, bank, dealer |
| Main costs | Expense ratio (two layers), possible exit load | Expense ratio, brokerage, spread | Spread on exchange | 3% GST, making charges, storage |
| Extra income | None | None | 2.5% yearly interest | None |
| Liquidity | Redeem with fund house | Good if volumes are high | Limited; low exchange volumes | Depends on buyer; deductions common |
| SIP option | Easy | Limited | Not applicable | Not applicable |
| Long-term holding period | More than 24 months | More than 12 months | More than 12 months if sold on exchange | More than 24 months |
| LTCG tax | 12.5% | 12.5% | Exempt at redemption for individuals; 12.5% if sold on exchange | 12.5% |
| STCG tax | Slab rate | Slab rate | Slab rate | Slab rate |
Tax on gold investments after Budget 2024
Gold taxation changed more than once between 2023 and 2025, so the date you bought and sold matters. Based on the Finance Acts of 2024 and 2025, the broad rules for sales on or after 1 April 2025 are:
- Gold ETFs: held more than 12 months, gains are long-term and taxed at 12.5% without indexation; otherwise, taxed at your slab rate.
- Gold mutual funds (funds of funds): held more than 24 months, gains are long-term and taxed at 12.5% without indexation; otherwise, taxed at your slab rate.
- Physical gold: held more than 24 months, long-term gains are taxed at 12.5% without indexation; otherwise, taxed at your slab rate.
- SGBs: capital gains on redemption by an individual are exempt; gains on selling on the exchange follow listed-security rules; interest is taxed at your slab rate.
The ₹1.25 lakh annual exemption applies only to equity, not to gold. Surcharge and cess are extra. Older purchases and sales before April 2025 may have been taxed differently. Please confirm your case on the Income Tax Department website or with a tax professional.
Gold vs equity: understanding relative performance
Gold and equities often behave differently. Gold has historically tended to hold up better in some periods of uncertainty, while equities tend to benefit more from economic growth. But neither always wins. The Quantsgrow Nifty gold ratio tool shows how the Nifty 50 has moved relative to gold over time, which helps you see these cycles for yourself.
For context on equity markets, read our guide to the Nifty 50 index, and for a passive equity option, see our index funds beginner’s guide.
How to compare gold options
- Decide whether you need a demat account. If not, gold mutual funds are simpler.
- Compare total expense ratios, remembering the two layers in a fund of funds.
- For ETFs, check trading volume and how close the price stays to NAV.
- For existing SGBs on the exchange, check the price against the current gold value, the remaining tenure and liquidity.
- Factor in tax holding periods: 12 months for gold ETFs, 24 months for gold funds and physical gold.
- Think about purpose. Jewellery serves personal and cultural needs; financial gold is easier to track and sell.
Common mistakes to avoid
- Treating jewellery as a pure investment and ignoring making charges and GST.
- Waiting for new SGB tranches without checking the official status.
- Buying low-volume gold ETFs and paying a premium over NAV.
- Assuming gold always rises. Gold prices can stay flat or fall for long stretches.
- Ignoring holding-period rules and paying slab-rate tax unnecessarily.
- Putting too large a share of the portfolio into a single asset.
Gold in a portfolio is usually about balance, not about maximum returns. The format you choose decides your costs, convenience and tax.
Conclusion
The gold mutual funds vs gold ETF vs SGB vs physical gold comparison comes down to convenience, costs, liquidity and tax. Gold ETFs suit investors with demat accounts, gold mutual funds suit those who prefer SIPs without demat, existing SGBs offer interest and tax-free redemption but no new issues, and physical gold carries the highest costs.
To study the options in detail, open the free Quantsgrow app, browse the gold funds page and track equity versus gold cycles with the Nifty gold ratio. You can also estimate a monthly plan using the SIP calculator.
Frequently Asked Questions
Can I still buy new Sovereign Gold Bonds?
No new tranches have been issued since SGB 2023-24 Series IV in February 2024, and the government has signalled that the scheme is being wound down because it is an expensive way to borrow. Existing bonds continue until maturity or premature redemption. Some older series trade on the stock exchanges, but volumes can be thin. Check RBI notifications for the latest official position.
What is the difference between a gold mutual fund and a gold ETF?
A gold ETF is listed on the stock exchange, needs a demat account and trades at live prices during market hours. A gold mutual fund, usually a fund of funds, invests in gold ETFs and is bought from the fund house at end-of-day NAV without a demat account. Gold mutual funds make SIPs easy but may cost slightly more because of an extra layer of expenses.
How is a gold ETF taxed in India now?
For gold ETF units sold on or after 1 April 2025, gains on units held for more than 12 months are treated as long-term and taxed at 12.5% without indexation. Gains on units held for 12 months or less are taxed at your income slab rate. The ₹1.25 lakh exemption for equity does not apply. Surcharge and cess are extra. Verify current rules with the Income Tax Department.
Is physical gold more expensive than gold ETFs?
Usually, yes, for investment purposes. Buying physical gold attracts 3% GST, and jewellery also carries making charges that are rarely recovered on sale. You may also face purity checks, storage and insurance costs. Gold ETFs and gold funds charge an annual expense ratio instead, with no GST on purchase. However, physical gold can serve personal or cultural purposes that financial products cannot.
What does the Nifty gold ratio show?
The Nifty gold ratio compares the level of the Nifty 50 index with the price of gold over time. A rising ratio means equities have done better than gold over that period, while a falling ratio means gold has done better. Investors use it to understand the relative performance of the two assets, not as a buy or sell signal on its own.
Disclaimer
This article is for educational purposes only and is not investment advice. Quantsgrow is not a SEBI-registered investment adviser, and all examples and cost assumptions are for illustration only. Tax rules are summarised in general terms; please consult a SEBI-registered investment adviser or tax professional before making any decision. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.
