Physical gold, ETF, SGB or digital gold: Which gives better returns, lower tax?

Physical vs digital gold vs SGB vs ETF: India’s love for gold goes far beyond jewellery. From weddings and festivals to long-term wealth creation, gold remains one of the most trusted investment options. But the way Indians invest in gold is changing rapidly. Along with jewellery and coins, investors are now turning towards Gold ETFs, Sovereign Gold Bonds (SGBs) and digital gold. According to market expert Ajay Kedia, every gold investment option comes with different return potential, taxation rules, liquidity and risk profile. Choosing the right one depends on whether your goal is wealth creation, liquidity, safety or jewellery usage.

Gold investment in 2026

Gold prices have surged sharply over the past few years amid global uncertainty, central bank buying and inflation concerns. As a result, investors are increasingly comparing physical gold, Gold ETFs, SGBs and digital gold to maximise returns while minimising taxes and storage costs.

Market expert Ajay Kedia said investors should not look only at gold price appreciation while choosing an investment mode. He said taxation, liquidity, annual costs and safety are equally important factors.

Sovereign Gold Bonds (SGBs)

Reserve Bank of India-issued Sovereign Gold Bonds are often considered one of the most rewarding gold investment products for long-term investors.

Ajay Kedia said SGBs offer a dual advantage - investors get 2.5 per cent annual interest along with gains linked to gold prices. He added that capital gains become completely tax-free if the bonds are held till maturity of eight years.

Key benefits of SGBs

• 2.5 per cent annual fixed interest
• Gold price-linked returns
• No storage or purity concerns
• Tax-free maturity gains after eight years

Drawbacks

• Lock-in period is long
• Liquidity in secondary market remains limited
• Early exit may attract capital gains tax

Ajay Kedia said SGBs are ideal for investors who want maximum post-tax returns and can stay invested for the long term.

Gold ETFs

Gold Exchange-Traded Funds (ETFs) have become popular among urban investors who prefer market-linked investments without physical storage hassles.

Ajay Kedia said Gold ETFs directly track gold prices and can be traded easily through stock exchanges like shares. He noted that Gold ETFs also provide better liquidity compared to SGBs.

Key benefits of Gold ETFs

• No storage or theft risk
• Easy buying and selling through demat account
• High liquidity
• Suitable for short- and medium-term investors

Tax rules

• Gains after 12 months qualify for long-term capital gains
• LTCG taxed at 12.5 per cent
• Short-term gains taxed as per income slab

Ajay Kedia said Gold ETFs suit investors who actively manage portfolios and want flexibility in buying or exiting investments quickly.

Physical gold

Physical gold remains the most common form of gold investment in India, especially for jewellery purchases during weddings and festivals.

However, Ajay Kedia warned that physical gold comes with additional costs that reduce overall returns.

Key costs in physical gold

• 3 per cent GST
• Making charges on jewellery
• Storage and locker expenses
• Purity concerns in some cases

Tax treatment

• Long-term capital gains apply after 24 months
• LTCG taxed at 12.5 per cent without indexation
• Short-term gains taxed as per slab

Ajay Kedia said physical gold is more suitable for cultural or jewellery needs rather than pure investment purposes.

Digital gold

Digital gold platforms have become increasingly popular due to ease of investment. Investors can buy gold online with very small amounts through apps and fintech platforms.

However, Ajay Kedia cautioned that digital gold still lacks strong regulatory oversight.

Key features of digital gold

• Easy online investment
• Small-ticket investments possible
• No need for demat account

Risks and concerns

• No direct regulation by Securities and Exchange Board of India or RBI
• Higher spreads may reduce returns
• Limited tax advantages

Ajay Kedia pointed out that the India Bullion and Jewellers Association (IBJA) has started work towards a self-regulatory organisation (SRO) framework for the sector, but regulation remains limited compared to ETFs or SGBs.

Which gold investment gives best returns

Ajay Kedia said SGBs currently offer the best long-term value because investors earn both annual interest and tax-free maturity gains. However, he added that liquidity remains a challenge.