There are many ways to invest in gold and most investors have the option of holding gold either physically or digitally. Investing in gold can be done in various forms, including physical gold, exchange-traded funds (ETFs), and sovereign gold bonds (SGBs).
Sovereign Gold Bonds (SGBs) and Gold ETFs and fund quality, all three stand on safety in investments. However, experts suggest that an investor should choose one of these options carefully as they come with a number of features as well as drawbacks.
Keeping gold physically with you is the most preferred method of keeping gold in India. It can be bought in the form of gold jewelery or gold biscuits, gold coins etc. Physical gold is a kind of secret investment, it is recorded like any other gold purchase, but kept confidential and completely private. Its transactions do not require the assistance of any broker or any other intermediary to fulfill the obligation like purchase of assets. Therefore, the risk is less in this and here the maximum investment is made.
Having gold in one’s portfolio prevents multiple diversification and is always recommended by financial advisors. Experts recommend that investors should have around 20 per cent gold in their portfolio. The yellow metal is viewed as a hedging tool in an investor’s portfolio rather than a wealth-creation instrument. Gold is a comparatively stable investment during market volatility and helps investors fight the effects of inflation and economic uncertainties.
Since gold is accepted as money all over the world, in case of emergency, one can sell one’s gold biscuits/ gold coins to get instant cash. While there is no limit to buy gold in physical form, investors should always keep proof of their gold investment (tax bill issued by jeweler in case of jewellery) keeping in mind the income tax implications.
The disadvantage here is that the resale value of jewelery is low as compared to other forms of gold. Also the purity of the gold being purchased can also be a big concern.
sovereign gold bond
Sovereign Gold Bonds (SGBs) are government security bonds issued by the Reserve Bank of India (RBI) on behalf of the Government of India. SGB is issued in multiples of one gram of gold and is traded through the exchange. These bonds can also be used as collateral to take out loans, similar to physical gold. Unlike physical gold, the risk of theft is lower with gold bonds. Additionally, gold bond prices are linked to the gold price of 999 purity (24 karat) published by the India Bullion and Jewelers Association (IBJA), so purity is not a concern.
The government offers a fixed assured interest rate of 2.5 per cent per annum on the issue price, which is paid half-yearly. The last installment is paid on maturity along with the principal. With Sovereign Gold Bonds, TDS is not applicable on the interest. According to an RBI notification, capital gains tax on redemption has also been exempted for individuals. On transfer of bonds, indexation benefit is provided in case of LTCG to the investor.
Liquidity can be an issue with these bonds. This is because bonds come with a tenor of 8 years and a lock-in period of 5 years. An investor can withdraw money from the 5th year only on the date on which interest is payable.
first published:Jan. 14, 2022, 1:02 p.m.