markets
Gold and silver stole the march on equities in January. For the first time, combined inflows into precious metal exchange traded funds (ETFs) crossed equity fund inflows, data released by the Association of Mutual Funds in India shows, signalling a shift in investor sentiment. While equity schemes saw Rs 24,029 crore in inflows, gold and silver ETFs together attracted over Rs 33,500 crore despite a volatile market.
The tilt towards safe-haven assets reflects investors rethink on portfolio protection amid uncertainty. If gold is back in focus, what is the best way to own it — physically, digitally or through ETFs and sovereign gold bonds?
What should investors choose right now?
Gold & silver ETFs
Gold and silver ETFs provide regulated, market-linked exposure through demat accounts. They track domestic metals prices and eliminate concerns around storage and purity.
“ETFs are best suited for investors who are already comfortable with markets and want gold and silver as part of a diversified financial portfolio,” said Mahendra Luniya, Founder and Chairman, Vighnaharta Gold.
Expense ratios and tracking errors can affect long-term returns. “Liquidity depends on market volumes and ETFs cannot be converted into physical gold or silver. Standard short- and long-term capital gains tax applies based on the holding period,” he said.
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Digital gold and silver
Digital gold has been popular for quite some time. Similarly, investors can now also invest in silver through online platforms. Digital gold and silver offer a more contemporary way to invest, closely tracking commodity prices without the hassle of physical ownership.
“Investors get beneficial ownership of 999-purity gold and silver, stored in insured vaults, with the ability to start with very small amounts,” Luniya said.
“Liquidity is one of the biggest advantages — buying and selling is typically instant and priced transparently. Storage and safety are managed by the platform, reducing the investor’s burden. While capital gains tax still applies, the absence of making charges and lower spreads help improve net returns. This makes digital gold and silver well-suited for short- to medium-term goals.”
But they are unregulated and hence the risk is higher in digital fold.
Sovereign gold bonds
Sovereign gold bonds (SGBs) stand out because of sovereign backing and the added benefit of interest income over and above gold price appreciation. “Holding SGBs until maturity also offers capital gains tax exemption, making them one of the most tax-efficient ways to invest in gold,” said Luniya.
Their main drawback is liquidity. “With fresh SGB issuances discontinued, liquidity is expected to weaken further. While they are tradable on exchanges, volumes tend to be thin and early exits may come at a discount,”Luniya said.
SGBs are best suited for long-term investors who don’t need quick access to their money.
Physical gold, silver
Physical gold and silver remain the most familiar and emotionally reassuring way to own these commodities. Jewellery, coins and bars offer direct possession and can also meet consumption needs but as an investment, physical gold & silver has several built-in drawbacks.
Making charges, GST, storage expenses and resale discounts all eat into returns. There are also safety concerns, such as theft, along with the cost of lockers. While physical gold and silver are liquid, selling is an offline process and price realisation often depends on the jeweller and location.
Luniya said, “Physical gold & silver continues to carry strong cultural significance in India. However, purely from an investment lens, it is the least efficient option. It works well for consumption needs, not for investors focused on maximising financial returns.”
How are gold and silver taxed?
Gold and silver tax largely depends on how you invest and how long you hold the precious metals. Both are treated as capital assets, not commodities, and the holding period determines whether gains are taxed at a lower long-term rate or added to your income and taxed at slab rates.
Most gold and silver investments attract a flat 12.5 percent long-term capital gains tax without indexation, while early exits can significantly raise the tax outgo. Sovereign gold bonds remain the most tax-efficient option provided they are held till maturity.
Across parameters such as purity, safety and transparency, gold and silver, ETFs and SGBs score higher due to standardised quality and institutional safeguards. From an accessibility standpoint, digital formats stand out with the lowest entry barriers, making them suitable for disciplined, phased investing in both metals.
When it comes to convertibility, physical and digital gold and silver offer flexibility for those who may want to convert holdings into jewellery or coins. ETFs and SGBs, on the other hand, remain purely financial instruments designed for portfolio allocation rather than consumption.
No single gold or silver investment option works for everyone. Each serves a distinct role depending on liquidity needs, time horizon and cost sensitivity. As Luniya put it, “Investors are better off aligning their gold and silver investments with financial goals and efficiency rather than relying solely on tradition.”
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.