What is the Gold Investment?
Gold can be held three ways, and the differences compound. Physical gold loses 8–15% immediately to making charges and carries storage risk. Gold ETFs track the price with a small expense ratio (~0.5%). Sovereign Gold Bonds track the price and pay 2.5% annual interest, with capital gains tax-free if held to the 8-year maturity.
Formula & worked example
All three follow the gold price; the differences are costs and the SGB coupon:
SGB = Amount × (1 + a)n + (Amount × 2.5% × n)
Worked example: ₹5,00,000 for 8 years at 8% appreciation. Physical (after 10% making charges) reaches about ₹8.33 lakh; an ETF about ₹8.90 lakh; an SGB reaches ₹10.26 lakh — ₹9.26 lakh of price value plus ₹1 lakh of interest. The SGB beats physical by nearly ₹1.9 lakh on identical gold.
How to use this gold investment calculator
- Enter the amount you plan to invest.
- Use a conservative appreciation rate — gold has averaged roughly 8–10% in rupees long term.
- Set making charges if you are comparing jewellery (typically 8–15%, plus GST).
- Compare the three rows to see what the wrapper alone costs you.
Smart tips
- SGBs are the best pure gold investment in India: 2.5% interest, no storage cost, and tax-free capital gains at maturity.
- Jewellery is consumption, not investment. Making charges are unrecoverable when you sell.
- Keep gold to 5–10% of your portfolio. It is a hedge, not a growth engine.
- Gold ETFs are the liquid choice — SGBs trade thinly on exchanges before maturity.
Frequently asked questions
Which is better: SGB, gold ETF or physical gold?
SGBs win for long holds thanks to 2.5% interest and tax-free maturity gains. ETFs win for liquidity. Physical gold is the weakest financially because of making charges.
Are sovereign gold bond gains tax-free?
Capital gains on redemption at maturity (8 years) are exempt. The 2.5% annual interest is taxable at your slab rate.
How much gold should I hold?
Most advisers suggest 5–10% of a portfolio as a hedge against equity falls and currency weakness. Gold produces no cash flow, so a large allocation drags long-term returns.
Do making charges come back when I sell jewellery?
No. Jewellers pay for gold content only, and often deduct further for purity. Expect to lose the entire making charge plus GST.
Want the theory behind the numbers? Read our gold guides on the Money Blog.