Gold Investment in India — Gold Funds vs Physical Gold

• Sushil Bajaj |
• 24 September 2025 |

For centuries, gold has played a cultural and financial pillar in India, viewed as a reliable store of value and safe haven of wealth. Gold has outperformed and this article will discuss the recent performance and outlook for gold, how gold mutual funds function, and precise comparison of gold funds vs. investing in physical gold along with the current tax implications relevant for any investor in the Indian context. It is embroidered in to the fabric of Indian society – weddings, festivals, family savings, etc – but it also serves a distinct financial purpose as a diversifier in a portfolio, an inflation hedge, and a safe haven during stressful market events. Gold Investment option has recently produced stellar returns, capturing the headlines, and has had many investors ask themselves if they should simply invest in jewellery and coins or utilize modern financial vehicles like gold mutual funds.

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Gold reaches record prices in 2025:

In 2025 gold prices have been reaching historical highs as some of the factors contributing are accommodating global monetary conditions, central bank buying and geopolitical uncertainties with most markets reporting rising gold prices for all major markets.

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Medium-term returns:

India has experienced strong performance with gold, and independent trackers are reporting a 5 year return in the low to mid-teens (example: ~13.5% 5 year return for gold that market trackers published in 2025), as a guideline to assess gold performance it is used to give an indication for expected return rather than ensure future returns.

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What drives gold next:

Gold responds mainly to

(a) global real interest rates and Federal Reserve guidance

(b) the strength/weakness of the US dollar

(c) inflation expectations

(d) central-bank purchases

(e) geopolitical risk.

These macro factors will shape near- to medium-term price moves.

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What are gold mutual funds?

Gold mutual funds in India are typically fund-of-funds that invest in overseas or domestic instruments that track gold prices (they do not buy jewellery). They provide paper-based exposure to gold-price movements without the need to handle physical metal. Key features:

Professional fund manager handles the fund; pricing is market-linked and transparent.

Can be bought via regular mutual-fund platforms (no Demat account required by the investor).

SIP option is usually available (systematic investment).

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Gold funds vs Physical gold

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if your objective is pure price exposure and portfolio diversification, gold funds usually win on convenience, cost-efficiency and liquidity. If your objective includes cultural/ornamental value, physical jewellery remains relevant.

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Practical advantages of choosing gold funds (when your goal is investment)

Small, regular investing (SIP): allows for rupee-cost averaging.

Better operational cost-efficiency: No making charges on transaction (and essentially no GST on making); much lower friction on entry/exit.

Safer & paper-based: No concern re: theft, storage, purity of material.

Easier to add to a financial portfolio: Part of online mutual-fund platforms and goal-based investing modalities.

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HDFC Gold ETF FOF – Growth

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Name of Top Gold ETF FoF Mutual Fund available to invest:

1. HDFC Gold ETF FOF
2. SBI Gold-Reg(G)
3. ICICI Pru Regular Gold Savings Fund(FOF)(G)
4. Aditya Birla SL Gold Fund(G)
5. Nippon India Gold Savings Fund(G)

You can easily invest through our online investment platform.

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How much gold should you hold?

Financial advisors typically recommend somewhere in the range of 5–15% of a diversified portfolio in commodity/precious-metal exposure like gold. This depends on an investor’s risk appetite and investment horizon and risk profile. You use the lower end of the range if you seek stability and the upper end of the range if you consider larger hedging against inflation/currency risk.

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If you buy jewellery for tradition or occasional wear, buy a physical piece of gold but be aware of making charges, and of how long and where to store the item.

If you want pure price exposure, ease of transaction, ease of inclusion in a financial portfolio, a gold mutual fund will almost always make more sense, because they are cheaper to hold, easier to transact, and easier to manage tax/reporting in context of a reporting (paper trail).