Gold above ₹1 lakh: Here’s how to invest at a fraction of the cost

Yes, gold is an important asset, but not for what it can do in the short-term. Its true benefit is the stability it can bring to a portfolio over the long term. Gold deserves a place in your portfolio, but isn’t the most straightforward of investments.

Thankfully, the mutual fund universe offers several attractive ways for investors to gain exposure to gold.

Gold ETFs

Units of gold exchange traded funds (ETFs) can be easily bought and sold on the stock exchanges for as little as ₹100. Gold ETFs are linked to the price of gold, and each unit is pegged to a certain quantity of the metal. For instance, Nippon India ETF Gold BeES currently trades at ₹94 per unit as each unit is pegged to 0.01 gram of gold.

These ETFs invest in gold with the highest purity. The Securities and Exchange Board of India requires them to buy gold as per the standards of the London Bullion Market Association, which mandate a purity of at least 99.5%. Fund houses appoint custodians to handle the physical gold, and they in turn appoint a vaulting agency to store the gold in vaults. But to invest in a gold ETF, you need a demat account. If you don’t have one, a gold fund of funds (FoF) may be a better option.

Gold FoFs

Gold FoFs invest in gold ETFs, allowing investors who don’t have a demat account to gain exposure to gold. Since these are structured like a mutual fund, you can buy units just as you would in any other fund. Another advantage they allow for systematic investment plans (SIPs). By setting up a SIP in a gold FoF, investors can gradually build exposure over time, averaging out their purchase cost and reducing the risk of mis-timing the market.

The expense ratios of gold FoFs are slightly higher than those of gold ETFs as charges are levied at both the fund level and the ETF level. However, there are no separate brokerage charges, which ETFs attract. Some gold FoFs allow for SIP installments as small as ₹100.

Multi-asset funds

Multi-asset funds are another way of getting exposure to gold. These, too, allow for SIPs installments as small as ₹100. However, as the name suggests, these funds invest in more than just gold. They typically have exposure to several other asset classes as well, such as equities, debt, silver, real estate investment trusts, and so on. Depending on the fund manager, such much a fund may have low or high exposure to gold.

“Different multi-asset funds have different allocations to gold. Some may not have gold allocation at different points in time. Investors should therefore check a fund’s portfolio before deciding to invest,” said Kalpesh Ashar, founder of Full Circle Financial Planners and Advisors.

The main advantage of investing in a multi-asset fund is that you don’t have to worry about asset allocation – when to increase exposure to gold or when to trim it, for example.

Those with high gold exposure have of course been among the best-performing funds over the past year. For example, WhiteOak Capital Multi Asset Allocation Fund, which had 13% exposure to gold as of 31 August 2025, has delivered returns of 15.2% over the past year (as of 23 September), making it the best-performing hybrid fund. The average return of multi-asset funds over the past year is 6.7%.

Sovereign gold bonds

While the government hasn’t announced any fresh issuances of sovereign gold bonds (SGBs), these bonds are still available on the secondary market. However, several SGBs are trading at a premium to the price of gold, which experts attribute to increased demand and a lack of fresh supply.

Manav Modi, analyst, precious metal research at Motilal Oswal Financial Services, said, “Investors can look for SGBs where the premiums are less. But also look for SGBs with longer residual tenure as SGBs offer 2.5% annual interest over and above gold price appreciation. The longer the tenure, the higher the gains from the interest component.” In other words, an SGB that matures in 2031 can deliver more value than one maturing in 2029, thanks to the 2.5% interest, but this also increases complexity. If you’re a beginner, it’s best to avoid SGBs.

“It is a bit complex. SGB does have the benefit of no tax if held till maturity. One can invest based on the risk profile and tenure of investment,” Modi added

On the other hand, gains from gold ETF and gold FoFs are taxed at 12.5% if held for the long term and at the investor’s income tax slab rate if held for the short term. ‘Long-term’ means more than one year for gold ETFs, and more than two years for gold FoFs.

What’s the outlook for gold?

Notwithstanding the past year’s rally, fund managers expect gold to do well in the future. “Fundamentals remain highly supportive for a prolonged gold bull market, though volatility and headline shocks are likely as global conditions evolve. We could be staring at a period during which the US economy is weak enough – as indicated primarily by labour market data – to prompt the Fed to ease monetary conditions even as evidence of a major new inflation wave emerges. These would be the ideal economic conditions to propel gold higher,” said Chirag Meha, chief investment officer, Quantum Mutual Fund.

Modi of Motilal Oswal Financial Services said, “Gold is expected to do well for a sustained period. There could be a healthy correction as and when there is normalcy, but we expect it to be a healthy correction before the next leg of the rally.”

What are the takeaways?

Experts warned that investors shouldn’t put money in gold just because of the recent rally. Dhirendra Kumar, founder and chief executive officer, Value Research, “Gold has rallied largely because central banks are adding to their reserves as part of de-dollarisation. But investors shouldn’t buy just because prices are up. If these banks were to sell even a tenth of their holdings over time, prices could retreat. Every asset class is cyclical; as conditions normalise, gold may cool off. Treat gold as a diversifier, not a momentum bet.”

Vidya Bala, co-founder of PrimeInvestor, said, “Gold returns in the past five years have been above long-term averages. But there are structural shifts in the global order that are propelling gold today — central banks diversifying their reserves, investors hedging against dollar depreciation, and the risk of sovereign debt crises.” Despite this, Bala said, “Investors who don’t own any gold should get an allocation even at these levels.”

However, it’s important not to get carried away. For perspective, data from the past 25 years shows gold has delivered annualised returns of 13.9%, against 12% for the BSE Sensex (as of 12 September 2025). But an analysis of five-year rolling returns over a 41-year period flips the story. Over this longer time frame, the Sensex delivered 14.7% annualised returns while gold delivered 10.3%.

Gold should therefore be part of a diversified portfolio that also includes equities and debt. Investors who are just starting out can gradually build a 5-7% allocation and those with a small allocation can consider increasing it to 10-12%.

To gain exposure to gold in your portfolio, you can consider gold ETFs or gold FoFs. If you prefer to leave the asset allocation mix to the fund manager, pick a suitable multi-asset fund. If you’re a beginner, SGBs are best avoided because of their complexity.