Gold buying is considered auspicious during Dhanteras, with many households purchasing jewellery, coins and bars as part of the festive tradition. However, if the objective is investment rather than personal consumption, the choice of gold instrument can significantly affect actual returns.
Investors can gain exposure to gold through jewellery, coins, gold exchange-traded funds (ETFs) and Sovereign Gold Bonds (SGBs). While all these options are linked to gold prices, they differ in purchase costs, liquidity, storage requirements and taxation.
Chirag Muni, Executive Director, Anand Rathi Wealth Limited, said Gold ETFs are generally the most efficient option for investors seeking exposure to gold prices because of their lower costs and ease of buying and selling. He recommends keeping gold allocation within 5-10% of an overall investment portfolio and treating jewellery primarily as a consumption-led purchase.
Gold jewellery vs coins: How making charges and GST affect returns
Gold jewellery is primarily suited to consumers who want to wear or gift the metal rather than invest in it. Making charges, GST and resale deductions can reduce the amount investors eventually recover.
Making charges on jewellery can range from 5% to 25%, depending on the design and jeweller. Gold coins generally carry lower premiums, although buyers must account for these additional costs and potential resale deductions.
“During resale, making charges and GST are not recovered, and the buyer may also deduct a margin or melting charge. So, even if gold prices rise, the investor’s actual return can be significantly lower than the increase in the underlying gold price,” Muni said.
Buyers opting for coins should also check purity, certification, purchase premiums and the jeweller’s buyback policy.
Gold ETFs: Why they can be more cost-efficient
Gold ETFs offer investors exposure to domestic gold prices without requiring them to purchase, store or safeguard physical gold. Listed on stock exchanges, these funds can be bought and sold through a demat and trading account.
“Gold ETFs are the most efficient method to have exposure to gold, as they offer zero making charges and storage charges while offering ease of buying and selling. Whereas jewellery is primarily suitable for consumption-led purchases, while gold coins involve premium charges and potential resale costs that investors should factor in,” Muni said.
However, gold ETFs are not entirely cost-free. Investors should account for the fund’s expense ratio, brokerage and other transaction costs. Returns can also differ marginally from domestic gold prices because of tracking error.
Liquidity is another important consideration. Before investing, buyers should examine trading volumes, bid-ask spreads and tracking error to ensure efficient transactions.
“Gold ETFs offer greater convenience and transparency than physical gold, as they are traded on the exchange without the need to visit a jeweller or verify purity. Physical gold can also be sold relatively easily, but the price offered depends on the buyer, purity assessment and applicable deductions,” Muni said.
SGBs: What to check before buying from the secondary market
Sovereign Gold Bonds were considered an attractive alternative to physical gold because they offered returns linked to gold prices along with fixed interest. However, with no fresh SGB tranches issued since February 2024, investors looking to purchase these bonds must explore the secondary market.
SGBs have an eight-year maturity period and offer fixed interest of 2.5% per annum on the initial investment, payable semi-annually. Premature redemption is permitted after the fifth year on designated interest payment dates.
However, secondary-market buyers must evaluate liquidity, purchase price and remaining maturity.
“Before purchasing SGBs from the secondary market, one should evaluate factors such as liquidity, premium and remaining maturity. SGBs can trade at a premium or discount to their underlying gold value based on their demand and supply, and some tranches have limited trading volumes,” Muni said.
Tax treatment is another important consideration. Following changes introduced in Budget 2026, the capital gains tax exemption on SGB redemption is restricted to individuals who subscribed during the original issuance and held the bonds continuously until maturity. Investors purchasing SGBs from the secondary market cannot claim this exemption. The revised provision applies from 1 April 2026.
Muni favours gold ETFs over secondary-market SGB purchases, citing liquidity challenges and the absence of the capital gains tax exemption for secondary-market buyers.
How much gold should you hold in your portfolio?
Choosing the right gold investment instrument is only one part of the decision. Investors must also determine how much of their overall portfolio should be allocated to the precious metal.
Gold can provide diversification and act as a hedge during periods of economic uncertainty and market volatility. However, it does not generate regular income like fixed-income investments or dividends from equities.
Muni recommends keeping gold allocation within 5-10% of the overall investment portfolio and considering it as a partial replacement for the debt component of a long-term portfolio.
Ultimately, the choice should depend on the purpose of the purchase. Jewellery is suited to personal consumption, coins to those who prefer physical ownership, while gold ETFs offer a convenient route for investors seeking exposure to gold prices. SGBs bought from the secondary market require additional scrutiny of their liquidity, pricing, maturity and tax treatment.
For those buying gold this Dhanteras purely for investment, the costs of acquiring and eventually selling the metal deserve as much attention as the prevailing gold price.