Diwali purchase: I want to start investing in gold and silver, how should I start?

Gold and silver have caught many investors off guard with their meteoric rise. Internationally, gold jumped from $1,900 in October 2023 to $3,860 today, while in India, prices surged from ₹61,000 to ₹1,17,290. In just one year, gold is up over 45%, and so far this year, it has gained more than 47%. This bull run has triggered FOMC—fear of missing out—as latecomers look to invest.

I want to start investing in gold and silver but am unsure of the best route. Physical coins involve making charges and 3% GST, while gold and silver ETFs raise questions on taxation, short-term and long-term capital gains, holding periods, and exit strategies. My horizon is 4–5 years, and I don’t want to time purchases only around festivals. Being new to ETFs, I’d appreciate simple, practical guidance on which option makes more sense for building wealth.

Advice by Akhil Rathi, Head – Financial Advisory at 1 Finance

Gold and silver have historically delivered strong returns and continue to hold importance as portfolio diversifiers in today’s global context. The key question is the purpose of your purchase. If it is for personal use, gifting, or cultural significance, physical coins or jewellery can be appropriate. But when the intent is pure investment over a 4–5 year horizon, physical gold becomes less efficient due to 3% GST on purchase, additional making charges on jewellery, and the hassles of storage and security.

For investors focused on wealth creation, ETFs emerge as the more practical route. They trade seamlessly on the stock exchange, eliminate purity or storage concerns, and involve lower overall costs. On taxation, gold and silver ETFs are classified as listed non-equity securities. If held for less than 12 months, gains are treated as short-term and taxed at your slab rate. Beyond 12 months, gains qualify as long-term and are taxed at a flat 12.5% without indexation—making them well-suited for medium-term horizons.

Over a 4–5 year period, ETFs typically deliver better efficiency than physical holdings. They allow you to bypass GST and making charges, offer liquidity at market price, and align neatly with favourable long-term taxation after the required holding period. A smart way to manage entry and exit is by accumulating gradually and redeeming in tranches, which helps balance volatility in commodity prices.

In short, while physical gold has its cultural and emotional appeal, ETFs provide the cleaner, more cost-effective, and tax-friendly path for wealth building and portfolio diversification over the medium to long term.

Investing in gold 

Gold's recent surge has created a strong Fear of Missing Out (FOMO) among investors, with prices skyrocketing 100% in the last 24 months and 200% since 2020. Internationally, the price jumped from $1,900 to $3,860 since October 2023, with a similar rally in the Indian market.

While physical gold (jewelry) offers ownership satisfaction, it involves significant hidden costs, including 5-25% making charges and fees for conversion back to cash.

The best alternative is paper gold via Gold Exchange-Traded Funds (ETFs). The main benefit is the low cost of ownership: Gold ETFs have an expense ratio of around 0.8%, far below jewelry costs. ETFs offer a transparent and standard price, and eliminate concerns about purity, safety, and storage.

Reflecting this trend, net inflows into Indian Gold ETFs rose 108% between August 2023 and August 2025. You can buy ETFs through a Demat account, or use Gold Fund of Funds (FoFs) if you do not have one. When selecting an ETF, prioritize the fund with the highest trading volume.