Due to several influencing factors such as high liquidity, diversification, and inflation-beating capacity, gold is considered as one of the most preferred investments in India. Investment in gold can be made in various forms such as gold funds, Exchange-Traded Funds (ETFs), and Sovereign Gold Bonds (SGBs). An investor has to choose between these options wisely as each has specific features attached to it.
Sovereign Gold Bonds (SGB)
SGBs are Government securities issued in multiples of one gram of gold and they also act as substitutes of physical gold. The Reserva Bank of India (RBI) issue Sovereign Gold Bonds on behalf of the Government of India and are these traded on an exchange.
Any person who is resident in India including individuals, HUFs, trusts, and charitable institutions are eligible to buy these bonds. Even if the residential status of an individual changes, he can continue to hold these bonds until maturity. Also, Joint holders and minors through guardians are eligible to invest.
SGBs offers 2.5% assured return per annum on the issue price and is paid half-yearly. In the case of Individuals and Hindu Undivided Family (HUF), the maximum purchase of gold is 4 kg for a year and 20 kg for trusts and similar entities. The tenure of the bond is 8 years and also premature withdrawal is allowed after the 5th year. The bond can be sold on exchanges if it is held in Demat form. Otherwise, on maturity, the amount will be paid to investors based on the average price of the previous three working days
Interest received during the holding period is taxed as per income-tax laws but the capital gain which arises on the redemption of these bonds after maturity is exempt from taxation.
Gold ETF
Gold ETFs are commodity-based mutual funds that can be bought and sold on exchanges. Here the commodity is the precious metal. Investments in gold ETF are suitable for all investors as they can be purchased with a minimum of one gram of gold. Investors need to have a trading account and a Demat account to buy gold ETFs. The costs of gold ETFs are very lower than physical gold.
Gold funds
These are schemes offered by the mutual funds which further invest in gold companies. By investing in gold an investor can diversify risk and avoid the risk of investing in physical form. Investment in these funds can start from Rs 500 through Systematic Investment Plan (SIP). Gold funds offer liquidity as the amount can be redeemed within three days.
