Investors wanting to buy gold have plenty of options to choose from. They can invest in gold through Sovereign Gold Bond Schemes (SGB) or buy Gold exchange-traded funds (ETFs). They also have the option to purchase gold futures on exchanges like the MCX or possess the yellow metal in physical form.
Here’s a breakdown of the pros and cons of different forms of gold:
SGBs
SGBs are government securities denominated in grams of gold. The bonds are redeemed in cash on maturity. The SGB is issued by the Reserve Bank on behalf of the Government of India and it carries a sovereign guarantee. It can be purchased when RBI comes out with an issue. Currently, the Sovereign Gold Bond Scheme 2023-24 – Series I is open for subscription. The issue price is set at Rs 5,926 per gram of gold while there is a discount of Rs 50 for those investors who subscribe online. The subscription period closes on Friday.
There are multiple advantages of SGB over other forms of gold. Apart from capital appreciation, SGBs offer a 2.5% interest, personal finance expert Jitendra Solanki. There is no capital gains tax if one remains invested for 8 years, he added. “SGBs are highly liquid and are traded on the exchanges. There is a sovereign guarantee and no danger of default. Moreover, there is no expense in managing it,” the expert said.
“In India, gold has given around 12% CAGR return in the last 25 years, if this historical return continues going forward, the money invested in this SGB can double in the next 8 years,” Prithviraj Kothari, Managing Director & Chief Executive Officer at RiddiSiddhi Bullions Limited (RSBL) said.
Gold ETFs
A gold ETF is an exchange-traded fund which tracks the domestic physical gold price. It is a passive investment instrument where units representing physical gold are in paper or dematerialised form. One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity. Gold ETFs combine the flexibility of stock investment and the simplicity of gold investments.
Gold ETFs are listed and traded on the NSE and BSE like a stock of any company and are traded in the cash segment. When you actually redeem Gold ETFs, you don’t get physical gold, but receive the cash equivalent. Gold ETFs incur management fees and have tax implications for long-term investors.MCX Gold
This is yet another way of buying gold in digital form. MCX gold futures are contracts between sellers and buyers which are traded on the Multi Commodity Exchange (MCX) where the buyer agrees to purchase a quantity of the metal at a predetermined price at a set future date. They do not carry any management fee and are taxed based on short-term and long-term capital gains.
Physical Gold
Investors buy it to possess the yellow metal in physical form. It can be bought via online modes and directly from shops.
“The first three forms of investments allow investors to buy gold in smaller quantities and are convenient. They do not carry purity and storage issues and are highly liquid,” Solanki said, adding that this is not the case with physical gold.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)