SGBs vs gold ETFs vs physical gold: the showdown

Three ways to own the same metal

Gold has been the headline asset of the past three years. On our NAV data, as of 1 October 2026, the median gold ETF returned 25.1% over one year and 35.4% a year over three. Ten gold ETFs had a full year of history, and their one-year returns sat in a tight band from 24.9% to 27.6%, which is what tracking the same metal looks like.

The metal is the same whichever way you hold it. What differs is what you pay to get in, what you pay to hold, how the gain is taxed, and how easily you can get out. Those differences decide how much of gold's return reaches you.

Sovereign Gold Bonds: the best wrapper, now closed

An SGB is a government bond denominated in grams of gold. It had three features nothing else matched:

• A 2.5% annual coupon on the issue price, paid half-yearly, on top of the gold price.
• No holding cost: no expense ratio, no storage, no purity question.
• Tax-free gain on maturity after the full eight-year term.

That combination made it the clear winner for a decade. Two things have since changed:

1. No new bonds. The last tranche was issued in February 2024 and the scheme was discontinued in Budget 2025. The only way in now is to buy an existing bond on the exchange.
2. The exemption narrowed. From 1 April 2026, under the Income-tax Act, 2025, the maturity exemption applies only to an original subscriber who holds continuously to maturity. A bond bought on the exchange today is taxable on redemption, and so is premature redemption in years five to eight.

The coupon was always taxable at your slab rate. SGBs on the exchange can also be thinly traded, and their price can sit below the value of the gold behind them, which can work for or against you.

Gold ETFs and gold funds

A gold ETF holds physical gold with a custodian and trades on the exchange. You need a demat account, you pay brokerage, and the annual expense ratio comes out of the NAV. A gold fund of funds (FoF) invests in a gold ETF; it needs no demat account and accepts SIPs, but adds its own expense ratio on top of the ETF's.

On our data, the gap between the two is small but visible:

These are NAV returns. An ETF investor buys and sells at the market price, which on a liquid ETF sits close to NAV and on a thinly traded one can drift. The gold ETF list shows each fund's record.

The bigger difference is tax. A listed ETF turns long-term at 12 months; an unlisted FoF needs 24. Sell at month 18 and the ETF gain is taxed at 12.5% while the FoF gain is taxed at your slab rate.

Physical gold: coins, bars and jewellery

Physical gold is the form most Indian households already own, and the most expensive to hold as an investment:

• 3% GST on the purchase.
• Making charges on jewellery, which are lost on resale. Coins and bars carry a smaller premium.
• Purity and resale discounts. Jewellers often deduct for purity or charge on the exchange.
• Storage: a locker costs rent; keeping it at home costs risk.

Gains are long-term after 24 months and then taxed at 12.5%. Jewellery has a use beyond investment, and that is a fair reason to buy it. It is not an efficient way to hold gold for return.

Digital gold sold by apps is a separate case. SEBI's advisory of 8 November 2025 states it is not a notified security or a regulated commodity derivative, so it sits outside SEBI's oversight. Our SGB vs gold ETF calculator includes it so the 3% GST and buy-sell spread are visible.

The showdown, side by side

What this means in practice

If you already hold SGBs from the original issue, the maturity exemption is the most valuable feature left, and selling early on the exchange gives it up. Our guide on SGBs after issuance stopped covers the exit routes.

If you are buying gold now, the practical choice is between an ETF and a FoF. With a demat account and a holding period that might fall between 12 and 24 months, the ETF wins on tax and cost. Without one, or for a monthly SIP, the FoF is the convenient route at a slightly higher cost. The gold funds and ETFs guide sets out the trade-off.

Do not let the recent returns size the holding. The same ETFs that returned 35% a year over three years also fell about 22% from their peak at one point in that period. Gold's role in a portfolio is to behave differently from equity, not to be the return engine, which is the case made in debt and gold as shock absorbers.

This post is for education only and is not investment or tax advice. Tax rules on gold have changed several times recently; verify before acting. Past returns do not predict future returns.