From SGB to ETFs: How to invest in gold this festival season

“These are safe as they are issued by the government and the returns are proportional to the returns on gold. They also have an additional fixed interest rate of 2.5 percent per annum. The gains from the gold bonds are also tax-free. This makes it very similar to holding physical gold with a 2.5 percent a year bonus,” Adhil Shetty, CEO at Bankbazaar.com told CNBC-TV18.

On the flip side, Shetty said that SGBs have a lock-in period of 5 years and one can use the exit option only from the fifth, sixth and seventh years on the interest payment dates. Alternatively, if investors need to exit before 5 years, they will have to sell the SGB on the stock exchanges.

“The RBI usually announces tranche around Dussehra-Diwali, and one can invest then,” Shetty said.

Investors looking for a more liquid option can consider Gold ETFs, said Shetty. Gold ETFs allow individuals to invest in gold in a dematerialised format, which can be bought and sold on the stock exchange just like shares.

The unit price of any ETF is typically linked to the price of one gram of 24k gold. These provide returns proportional to the returns on gold and are good options if the investment window is shorter.

Individuals can also invest in Gold Mutual Funds. Many Mutual Fund houses closely track the value of gold and have gold-backed mutual funds that users can invest in via SIPs.

"This makes it very rewarding to invest. Units of gold funds can be redeemed by selling them back to the fund house based on the NAV for the day," Shetty told CNBC-TV18.