Gold and silver investments: Should you buy physical gold, ETFs or mutual funds? Liquidity, costs and risks compared
Indian investors can buy gold and silver in several ways, from physical coins and bars to exchange-traded funds (ETFs), mutual funds and Sovereign Gold Bonds (SGBs). While these options offer exposure to precious metal prices, they differ in costs, liquidity, regulation, storage requirements and taxation.
Choosing the right route requires looking beyond the price of gold or silver. Investors must also consider how much they pay to enter an investment, the ease of selling it and whether they want to own the physical metal or simply benefit from price movements.
SEBI-regulated gold ETFs, silver ETFs and mutual funds offer alternatives to buying physical metal. However, digital gold sold through payment apps and online platforms operates under a different regulatory framework, making the distinction important for retail investors.
Investors who want to hold gold or silver directly can buy coins and bars from reputable jewellers and sellers. For investment purposes, these generally involve lower making charges than jewellery, although minting charges and the difference between purchase and resale prices can still affect returns.
Physical metal also comes with storage and security concerns. Investors may incur locker or insurance costs, while resale can involve purity checks and a discount to the prevailing market price.
Those buying coins and bars online should verify the seller's credentials, check the stated purity and compare the purchase price with prevailing bullion rates. These precautions are particularly relevant when the buyer cannot inspect the product before delivery.
Gold and silver ETFs allow investors to gain exposure to metal prices without storing bullion themselves. The funds trade on stock exchanges, and investors generally need a demat and trading account to buy and sell their units.
The fund house manages the underlying metal's custody, while investors pay expenses associated with managing the fund and any applicable brokerage charges.
However, the price of an ETF unit alone does not determine whether it is attractively valued. Different schemes can represent different quantities of metal per unit, so a lower unit price does not necessarily mean a cheaper investment.
Investors should also check liquidity and compare the traded price with the scheme's indicative net asset value (iNAV), where available. A thinly traded ETF can trade at a premium or discount to the value of its underlying assets.
Gold and silver fund of funds (FoFs) invest in the corresponding ETFs. They offer a way to invest through the mutual fund route without opening a demat account and can be suitable for investors who prefer systematic investment plans (SIPs).
The convenience comes with an additional layer of expenses. Investors bear the costs of the FoF as well as those of the underlying ETF.
FoFs can also be affected by premiums or discounts in the underlying ETF's market price. Consequently, investors should compare the total expense ratio and understand how the scheme obtains exposure to the metal before investing.
Digital gold allows investors to purchase small quantities of gold through online platforms, with the corresponding metal typically held in vaults by a service provider.
However, convenience should not be confused with regulatory protection. In November 2025, SEBI cautioned investors that digital gold products offered by online platforms are neither notified as securities nor regulated as commodity derivatives. It also flagged potential counterparty and operational risks.
Investors should therefore distinguish digital gold from regulated gold ETFs and other securities-market products. They should also examine the platform's buy-sell price difference and applicable taxes before making a purchase.
SGBs offer exposure to gold prices along with an annual interest payment of 2.5% of the original investment amount, payable semi-annually. However, fresh government issuance has been discontinued, leaving investors to consider existing bonds traded on exchanges.
Investors buying SGBs in the secondary market should assess the bond's remaining tenure, liquidity, market price and applicable tax treatment. Exchange prices can also include accrued interest, so comparing a bond's quoted price directly with the spot price of gold may be misleading.
Electronic Gold Receipts (EGRs), meanwhile, represent ownership of physical gold held in accredited vaults and can be traded on exchanges under SEBI's regulatory framework. They also provide for conversion into physical gold, subject to the applicable framework. However, investors should check whether their broker provides access and whether sufficient trading liquidity exists.
Ultimately, investors should compare costs, liquidity, regulation, tax treatment and access requirements before choosing an investment route. Physical gold suits those who value direct ownership, while ETFs and mutual funds offer market-linked exposure without the burden of storing metal. Neither gold nor silver guarantees returns, and both can experience sharp price fluctuations.
Kirti jha
Kirti Jha is a Senior Content Producer at Mint, where she writes on mutual funds, taxation, personal finance and macroeconomic developments. Her reporting focuses on helping readers understand complex financial developments through data-driven, research-backed stories that explain how policy changes, market trends and regulatory decisions affect investors and households. <br><br> Before joining Mint, Kirti worked at ET Money, where she specialised in mutual fund research and investment analysis. She tracked portfolio disclosures, fund manager strategies, sectoral allocation shifts and investment trends, distilling large datasets into investor-focused insights. Her work combined quantitative analysis with consumer-centric storytelling, enabling readers to better understand fund positioning, portfolio changes and long-term investment opportunities.<br><br> Kirti holds a Bachelor's degree in Economics from Indraprastha College for Women, University of Delhi, and a Master's in Finance from the Jindal School of Banking & Finance at O.P. Jindal Global University. Her academic training emphasised analytical thinking, quantitative research and financial decision-making, providing a strong foundation in understanding capital markets, financial systems and economic policy. With a combined experience in investment research and financial journalism, she is committed to producing accurate, accessible and insightful journalism that empowers readers to make well-informed financial decisions.
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