Physical Gold vs GIFT City Funds - Which is Better for NRIs

​My friend bought 100 grams of gold in 1995 for ₹45,000. Today, that same gold is worth over ₹8 lakhs.

Sounds like a brilliant investment, right?

But here's what we never calculated: the making charges he paid (12%), the locker rent for 30 years, the insurance, and the fact that when we tried to sell 20 grams for my sister's wedding, the jeweller offered 8% below market price.

The actual return? Closer to 9% annually instead of the 14% gold price growth suggests.

This is the gap between owning gold and owning gold efficiently.

At Belong, we've had hundreds of conversations with NRIs in our WhatsApp community about gold vs modern investment options like GIFT City funds. The answer isn't straightforward. It depends on what you're actually trying to achieve.

This guide breaks down both options honestly, with real costs and real scenarios, so you can decide what works for your situation.

The Real Cost of Physical Gold (That No One Talks About)

When you buy gold jewelry or coins, you don't just pay the gold price. There's a stack of hidden costs that silently erode your returns.

Making Charges: 8-25% Lost Immediately

For jewelry, making charges range from 8% for simple designs to 25% for intricate work (Source: MMTC-PAMP). This money pays for craftsmanship, not gold content.

When you sell? The jeweller values only the gold. Your ₹1 lakh necklace with ₹15,000 in making charges sells for ₹85,000 worth of gold, minus their margin.

For coins and bars, making charges are lower (3-5%), but they still exist.

GST: 3% on Gold + 5% on Making Charges

Every gold purchase in India attracts 3% GST on the gold value plus 5% GST on making charges (Source: ClearTax). On a ₹1 lakh jewelry purchase, you're paying ₹3,000 on gold and an additional ₹500-1,500 on making charges.

This GST is not recoverable for individual buyers.

Buy-Sell Spread: 3-5% Hidden Loss

When you buy gold, you pay retail price. When you sell, you get wholesale price. This spread can be 3-5% depending on the jeweller (Source: Business Today).

A chartered accountant recently pointed out that buying at ₹1.22 lakh per 100g and selling at ₹1.18 lakh means a ₹4,000 loss before any market movement.

Storage Costs: ₹2,000-15,000 Annually

A bank locker costs ₹2,000 to ₹15,000 per year depending on size and city (Source: SBI Locker Charges). Home storage means insurance premiums and security concerns.

Over 10 years, that's ₹20,000 to ₹1.5 lakh in storage alone.

👉 Tip: If you're buying gold purely as investment (not jewelry for wearing), coins or bars have lower making charges than ornaments. But even then, storage and spread costs apply.

What Are GIFT City Funds?

Before comparing, let's clarify what GIFT City investment options actually are.

GIFT City (Gujarat International Finance Tec-City) is India's first International Financial Services Centre. It's regulated by IFSCA and offers investment products specifically designed for NRIs.

Key GIFT City Investment Options:

Mutual Funds: Asset management companies like Tata, DSP, and Edelweiss have launched funds in GIFT City. These are denominated in USD, EUR, or other foreign currencies, eliminating currency conversion hassles.

Alternative Investment Funds (AIFs): For larger investors ($75,000 minimum as of February 2025), AIFs offer equity, debt, and hybrid strategies with favorable tax treatment.

USD Fixed Deposits: Banks in GIFT City offer USD FDs at 4.5-6% annually, completely tax-free for UAE residents.

Why Does This Matter for Gold Comparison?

GIFT City funds provide an alternative for NRIs who want:

Capital growth (through equity funds). Guaranteed returns (through USD FDs). Tax efficiency (Section 10(4D) exemptions). Currency protection (USD denomination).

The question is whether these advantages outweigh gold's traditional appeal.

Returns Comparison: Gold vs GIFT City Funds

Let's look at actual numbers.

Gold Returns (Historical):

10-year CAGR (2014-2024): Approximately 11.1% in INR (Source: Rupeezy). 5-year CAGR (2019-2024): Approximately 17.2% in INR. 2025 YTD: Over 60% gains, reaching all-time highs above ₹1 lakh per 10 grams (Source: World Gold Council).

Gold has had an exceptional run. But this is the headline number. For physical gold owners, subtract making charges (10-20%), GST (3-8%), storage (1-2% annually), and buy-sell spread (3-5%).

Net returns for physical gold buyers are typically 2-4% lower than gold price appreciation.

GIFT City Equity Funds (Historical):

Equity funds investing in Indian markets have delivered 12-15% CAGR over 5-year periods. The Tata India Dynamic Equity Fund launched in GIFT City in September 2025 gives NRIs access to Indian equity with USD denomination.

However, equity funds carry market risk. In 2022, many funds lost 15-20%.

GIFT City USD FDs:

These offer 4.5-6% annually in USD, guaranteed. Lower than gold's recent performance, but with zero market risk.

Sources: World Gold Council, IFSCA, Fund house reports

👉 Tip: Gold's 2024-2025 returns are exceptional and may not repeat. Long-term CAGR (10-20 years) is closer to 8-11%. Don't extrapolate recent performance indefinitely.

Tax Treatment for NRIs

This is where GIFT City funds gain significant advantage.

Physical Gold Tax for NRIs:

Short-term (held less than 24 months): Taxed at your income tax slab rate. Long-term (held more than 24 months): Flat 12.5% without indexation benefit (Source: Income Tax Act, post-Budget 2024).

When NRIs sell gold, buyers may not deduct TDS, but the NRI is still liable to pay capital gains tax when filing returns.

GIFT City Fund Tax for NRIs:

Section 10(4D) of the Income Tax Act exempts capital gains on units of schemes launched under IFSCA Fund Management Regulations 2022 for non-residents (Source: Income Tax Act).

This means: No TDS. No capital gains tax in India for qualifying funds. For UAE NRIs: Zero tax globally (since UAE has no income tax).

For a ₹10 lakh gain, that's ₹1.25 lakh saved in taxes by choosing GIFT City funds over physical gold.

Read our detailed guide on GIFT City taxation for fund-specific rules.

Currency Risk: The Hidden Variable

Here's something gold lovers often overlook.

Physical Gold and Currency:

Gold is priced globally in USD. When you buy gold in India, you're essentially buying USD-gold converted to INR.

If the rupee weakens (which it has, at 3-4% annually over the past decade), your gold value in INR increases even if gold prices stay flat globally.

This is a tailwind for gold in INR terms.

But when you want to repatriate to UAE or the US, you convert back to foreign currency. The rupee depreciation that helped your INR returns hurts your repatriation value.

GIFT City Funds and Currency:

GIFT City funds are denominated in USD. You invest in dollars, you earn in dollars, you withdraw in dollars.

No conversion. No currency risk. No forex charges on exit.

For NRIs planning to stay abroad, this is a significant advantage.

Use our Rupee vs Dollar Tracker to understand historical currency movements.

👉 Tip: If you're planning to return to India permanently, rupee-denominated assets (including physical gold) make sense. If you'll stay in the UAE or move to another country, USD-denominated GIFT City investments protect your purchasing power.

Liquidity: When You Need Money Fast

Physical Gold Liquidity:

Selling gold quickly is harder than it seems.

Jewellers offer lower prices for distress sales. Purity verification takes time. You need to physically visit a shop. Weekend or holiday? You're stuck.

Gold loans are an option, but they typically offer only 75-80% of gold value and carry interest costs.

GIFT City Fund Liquidity:

Open-ended mutual funds allow redemption within 2-4 business days. USD FDs can be broken with some penalty. No physical movement required.

For emergency access to funds, GIFT City investments are significantly more liquid.

Safety and Security

Physical Gold Risks:

Theft: Home-stored gold is vulnerable. Even bank lockers aren't 100% secure (banks don't insure locker contents). Purity fraud: Despite hallmarking, some jewellers mix impurities. Resale disputes: Buyers may dispute weight or purity.

GIFT City Fund Safety:

IFSCA regulation: Funds are regulated by India's dedicated IFSC authority. Custodian protection: Your investments are held by registered custodians, not fund managers directly. No physical asset: Nothing to steal or lose.

However, GIFT City funds don't have deposit insurance like NRE FDs (which have ₹5 lakh DICGC coverage). Market risk applies to equity funds.

The Cultural Factor: Why Gold Still Matters

Let's be honest about something numbers can't capture.

For many Indian families, gold isn't just an investment. It's:

Security for daughters. Tradition passed across generations. Status in social gatherings. Emergency backup that doesn't require bank paperwork.

At weddings, you can't show your GIFT City fund statement. Gold jewelry is tangible, visible, and culturally meaningful.

This emotional value is real. If your goal is creating family heirlooms or wedding jewelry, physical gold serves a purpose that mutual funds can't.

But if your goal is pure wealth building, the math clearly favors modern investment options.

👉 Tip: Separate your "jewelry gold" from "investment gold." Buy jewelry for wearing and gifting. Invest through GIFT City for wealth creation. Don't confuse the two.

The Third Option: Gold ETFs in GIFT City

There's a middle path many NRIs don't know about.

GIFT City now offers gold exposure through:

Bullion Depository Receipts (BDRs): Electronic gold traded on India International Bullion Exchange (IIBX). Capital gains on BDRs are exempt for non-residents. Gold ETFs: Listed on NSE IFSC, providing gold price exposure without physical ownership.

These options give you:

Gold price exposure. No making charges. No storage costs. GIFT City tax benefits. Easy repatriation.

If you want gold in your portfolio without the hassles of physical ownership, GIFT City gold instruments may be the answer.

Learn more about GIFT City investments.

NRIs Can't Buy Sovereign Gold Bonds (SGBs)

A quick clarification: many NRIs ask about SGBs since they offer 2.5% annual interest plus gold price appreciation.

Unfortunately, NRIs are not eligible to purchase SGBs under RBI and FEMA regulations (Source: RBI).

If you bought SGBs before becoming an NRI, you can hold them until maturity. But new purchases are prohibited.

This makes GIFT City gold instruments even more relevant for NRIs seeking regulated gold exposure.

Cost Comparison: ₹10 Lakh Investment

Let's compare total costs for a ₹10 lakh investment held for 5 years.

Physical Gold (Jewelry):

Making charges (15%): ₹1,50,000. GST (3% on gold + 5% on making): ₹37,500. Storage (₹5,000/year × 5): ₹25,000. Buy-sell spread on exit (4%): ₹40,000. Total costs: ₹2,52,500 (25.25% of investment).

Physical Gold (Coins/Bars):

Making charges (5%): ₹50,000. GST (3%): ₹30,000. Storage (₹5,000/year × 5): ₹25,000. Buy-sell spread (2%): ₹20,000. Total costs: ₹1,25,000 (12.5% of investment).

GIFT City Equity Fund:

Expense ratio (1.5%/year × 5): ₹75,000 (approximate). Exit load (1% if within 1 year): ₹0 (if held 5 years). Total costs: ₹75,000 (7.5% of investment).

GIFT City USD FD:

No charges (interest is the return). Total costs: ₹0.

The cost difference alone can mean lakhs over a decade.

When to Choose Physical Gold

Physical gold makes sense if:

1. You're buying for weddings or gifts

Gold jewelry has cultural significance that investment products can't replace. Budget for making charges as a consumption expense, not investment cost.

2. You want a tangible emergency reserve

In extreme scenarios (banking collapse, natural disasters), physical gold can be traded directly. This is insurance, not investment.

3. You plan to return to India permanently

If your future expenses are in rupees, owning rupee-denominated assets (including gold) makes sense.

4. You're buying in India and keeping it there

If gold stays in India (in a family locker, for example) and will be used in India, the repatriation question doesn't arise.

When to Choose GIFT City Funds

GIFT City funds make sense if:

1. Wealth building is your primary goal

If you're investing for long-term capital appreciation, equity funds offer higher potential returns with lower costs.

2. You value liquidity

Need money quickly? GIFT City funds can be redeemed in days. Physical gold takes longer and usually at worse prices.

3. Tax efficiency matters

For UAE NRIs, the 12.5% capital gains tax saving on physical gold is significant.

4. You'll repatriate funds abroad

USD-denominated investments eliminate currency conversion hassles and protect purchasing power.

5. You want diversification

GIFT City offers equity, debt, hybrid funds, real estate (REITs), and global exposure. Gold is just one asset class.

Explore options through our GIFT City Mutual Funds Explorer.

Building a Balanced Portfolio

Most financial advisors recommend 5-15% gold allocation in a diversified portfolio.

Here's how an NRI might structure it:

Conservative Portfolio:

40% GIFT City USD FDs (safety). 30% GIFT City debt funds (moderate returns). 15% GIFT City equity funds (growth). 10% Gold (via BDRs or ETFs in GIFT City). 5% Physical gold (emergency reserve).

Growth Portfolio:

50% GIFT City equity funds. 20% Global equity (via GIFT City). 15% GIFT City debt funds. 10% Gold (via BDRs). 5% Physical gold.

Traditional Portfolio (for those returning to India):

30% NRE FDs. 25% Physical gold (jewelry + coins). 25% Indian equity mutual funds. 20% Real estate.

The right mix depends on your goals, timeline, and where you'll eventually live.

Use our Compliance Compass to ensure your investments meet regulatory requirements.

Common Mistakes NRIs Make with Gold

Mistake 1: Treating jewelry as investment

Jewelry is a consumption item with embedded making charges. Treat it as such.

Mistake 2: Not accounting for all costs

That "12% annual return" becomes 7-8% after making charges, GST, storage, and spread.

Mistake 3: Keeping all gold in one place

Diversify storage. Split between bank locker and trusted family members.

Mistake 4: Not declaring gold purchases correctly

When bringing gold to India, follow customs limits (20g for men, 40g for women duty-free). Excess attracts duty. Read our gold carry limit guide.

Mistake 5: Ignoring tax obligations

Even if TDS isn't deducted, you're liable for capital gains tax on gold sales. File ITR correctly. Our NRI tax filing service can help.

The Verdict: It Depends on Your Goal

Neither physical gold nor GIFT City funds is universally "better."

Choose physical gold if:

You need jewelry for cultural reasons. You want tangible emergency reserves. You're staying in India long-term.

Choose GIFT City funds if:

You're investing for wealth building. You want tax efficiency and easy repatriation. You'll remain abroad.

Choose both if:

You want a diversified portfolio. You can separate "jewelry gold" from "investment gold."

Making Your Decision

Gold will always have a place in Indian hearts. It's cultural, emotional, and has genuine utility.

But for pure investment purposes, the math increasingly favors modern instruments like GIFT City funds. Lower costs, better tax treatment, easier liquidity, and currency protection add up over time.

At Belong, we help NRIs access GIFT City investments that match their goals. Whether you want equity exposure, guaranteed USD returns, or even gold through regulated instruments, we've built tools to make it simple.

Compare NRI FD rates across NRE, FCNR, and GIFT City options. Explore GIFT City mutual funds for growth potential. Check your residential status to understand tax implications.

Have questions about gold vs GIFT City investments? Join our WhatsApp community where NRIs discuss these decisions daily. Or download the Belong app to access all our NRI financial tools.

Your wealth deserves smart choices. Make them with full information.

Sources:

• World Gold Council - Gold Returns
• IFSCA - Fund Management Regulations
• Income Tax Act - Section 10(4D)
• RBI - SGB Guidelines
• ClearTax - GST on Gold
• CBIC - Customs Duty on Gold
• MMTC-PAMP - Gold Taxation