Gold ETFs, SIPs, And SGBs: Smarter Alternatives To Traditional Gold Buying

With Akshaya Tritiya around the corner, focus is back on gold, not as a 'safe haven' investment, but as an auspicious metal in Indian traditions. Gold's link to prosperity is deeply ingrained and has been followed for generations. But with changing times and evolving investment options, physical gold does not remain the only choice.

According to experts, gold jewellery is an ornament, not an investment. People rarely sell it. Besides, the making charges that can range between 6 and 14 per cent or sometimes more of the total weight of the gold in jewellery, along with the hassles to store it safely, also make it burdensome to some extent. Until it is for use, buying gold in physical form only adds to the maintenance hassle.

While awareness has increased about gold alternatives, it is vital to understand them to utilise them. There are four alternatives to invest in gold that offer the financial security attached to gold without holding the actual metal.

One can buy gold through various instruments, such as gold exchange-traded funds (ETFs), gold mutual funds (MF), sovereign gold bonds (SGBs), and digital gold.

Gold ETFs

Gold ETFs invest in physical gold, but as an investor, this is a passive investment where the investor holds the units of a gold ETF in a demat account. Gold ETFs represent physical gold, but are not actual gold. One can buy and sell them just like any other stock in the share market. In short, they offer liquidity, and flexibility of buying and selling a few or more units.

When sold within 12 months of purchase, the gains are taxed as short-term capital gains (STCG) based on one’s income tax slab rates, and for a longer holding period, a 12.50 per cent long-term capital gain (LTCG) is levied.

As they can be traded on the stock exchange, they are highly regulated and thus offer much-needed transparency. Investors inclination is evident from the fact that the total folio numbers in gold ETFs increased from from 69.69 lakh in March 2025 to 1.24 crore in March 2026, reflecting a growth of 54.28 lakh folios.

Gold Mutual Funds

Gold mutual funds are the same as gold ETFs, as they also invest in pure gold; however, not directly in stocks, but by purchasing units of gold ETFs. 

The most important benefit of investing through a mutual fund is a systematic investment plan (SIP). Instead of investing a lump sum, one can choose to invest through an SIP. This offers the same benefits as any other mutual fund scheme and is good for beginners for making gold a part of their portfolio.

Unlike ETFs, a demat account is not mandatory to buy a mutual fund; however, the expense ratio is typically higher in MFs compared to gold ETFs, and in the long term, it could affect the final returns, albeit only slightly. However, it is better than holding physical gold.

The gain on the investment will be considered as capital gain. On selling units of a gold mutual fund held for up to 24 months, the tax slab rates will apply under STCG, whereas for longer period holdings, LTCG at the rate of 12.50 per cent will apply.

Sovereign Gold Bonds (SGBs)

SGBs are the best alternative investment in gold, in terms of taxation. If one has bought these sovereign bonds in the original allotment and held them for the full term, which is eight years, the returns will be fully exempt. No LTCG will apply. But the government stopped issuing these bonds from 2024. The last issue was in February 2024, at a price of Rs 6,263 per gram.

However, these are traded in the secondary market, and one can buy them from there. The instrument offers half-yearly interest fixed at 2.50 per cent, taxable at the subscriber’s hands. In case of selling them before maturity or if one buys them in the secondary market and sells at maturity, the gain will be taxed as per slab rates under STCG if sold within 12 months of such purchase and at 12.50 per cent under LTCG if SGB is sold after 12 months holding period.

Other Digital Gold Options

Several companies, including MMTC-PAMP, Augmont, SafeGold, Tanishq, among others, offer digital gold, which is a certificate in exchange for a gold purchase. The process is completely online, and the minimum amount can be as low as Re 1 or 0.1 gram. One can redeem the amount and get money in a bank account or get a gold coin in exchange for the invested amount. The redemption gain is taxable under STCG and LTCG, depending on the holding period. STCG will apply for a holding period of up to 24 months, and LTCG for a longer holding period. But one must remember that the digital gold space is not regulated by the Reserve Bank of India (RBI) or the Securities and Exchange Board of India (Sebi), and thus, carries risk.

As experts suggest allocating around 10 per cent of the portfolio to gold and precious metals to mitigate the risk, one may consider investing in gold instruments during Akshay Tritiya and other festivals to rebalance their portfolio and blending tradition with financial prudence.