Dhanteras 2021: physical gold, digital gold, gold ETF, gold mutual fund or gold sovereign bonds? What to buy this Diwali? Check what the experts advise
Being the oldest method of investment, physical gold includes investment in gold bullion / coins and jewelry. Investing in bullion and coins is always profitable than jewelry because the latter have higher manufacturing costs. There is a risk of theft and purity issues for physical gold, but it is the only asset that can be kept completely private and confidential.
Digital gold buys gold online which allows you to hold 24k gold with virtually no bank vault / locker. The seller keeps an equivalent weight of physical gold in a secure safe for each online purchase. However, the risk is that there is no regulatory oversight by a regulator such as SEBI or RBI. Currently, 3 players dominate this market in India – Augmont Gold, MMTC-PAMP India and SafeGold, which also increases the overall risk of the investment. Investors can invest in digital gold through Google Pay, Phonepe and Paytm etc.
Gold ETF is an exchange traded fund that aims to track the price of national physical gold and is stored in your Demat account. They are passive investment instruments, representing physical gold and backed by very high purity physical gold. Gold ETFs combine the simplicity of investing in gold with the flexibility of investing in stocks as they are listed and traded on the NSE and BSE like a stock of any company. The associated risk is market risk due to the potential volatility of gold prices.
Gold funds are open-end funds that invest in units of gold ETFs as an underlying asset. Investment in a Gold mutual fund can be done even without a Demat account unlike gold ETFs, where a Demat account is mandatory. Here you can enjoy the same benefit of physically owning gold with professional fund management. The associated risks are the market risk linked to the volatility of gold prices.
The Gold sovereign bonds (SGB) are considered a substitute for holding physical gold and are government securities denominated in grams of gold issued by RBI on behalf of the Government of India (GoI). It is not backed by physical gold and instead is a derivative of gold issued by the GoI through the RBI. SGBs offer periodic interest payments guaranteed at 2.5% per annum as well as return of principal to investors at maturity. In fact, there is currently a discount of Rs 50 per gram for purchasing these sovereign bonds online. They are published periodically by the RBI, usually at intervals of 1 to 2 months, and the buy window is open for 5 days at a time.
(Source: Anand Rathi)
Physical gold, digital gold, gold ETF and gold mutual funds: Very liquid as they can be bought and sold quite easily and therefore can be considered as liquid investments.
Sovereign Gold Bond: Maturity period – 8 years. Blocking period – 5 years, early redemption can be made after 5 years. There is another option to sell SGBs in the secondary market, that is, the stock market. This can be done at any time after the expiration of 6 months from the date of issue. However, this secondary market usually has low volumes, so you may need to sell your bonds below the market price of gold.
By comparing the risk and returns, total cost, amount of investment, liquidity and taxation of different gold investment instruments in India, Jigar Trivedi, Commodity – Fundamental Analyst, Anand Rathi believes that for long-term (> 5 years) investments in gold, SGBs are considered the best option in the industry, as they give the maximum return on investment. SGB provides 2.5% annual interest as well as a tax-free refund after the 5-year lock-in period, providing investors with maximum profit.
He further added that for short to medium term investors with an investment horizon of less than 5 years, ETFs and Gold mutual funds are recommended. This is because the total annual cost remains below 2% and they are very liquid and can be bought and sold easily.
“We would also like to stay away from physical gold and digital gold from an investment perspective due to the higher costs incurred and high buy-sell spreads. The risk is also comparatively higher for these, compared to other instruments, ”said Anand Rathi’s Trivedi.
In the same way, Manikaran Singal, Investment Advisor (registered Sebi) at goodmoneying.com, said, “Sure, gold bonds are good, unless you’re buying jewelry, which is considered a consumer expense rather than an investment. In order for the investment to be considered good, it must be profitable and tax-efficient, and both of these characteristics are found in sovereign gold bonds. “
“SGB is not subject to any capital gains tax at maturity and being a financial instrument issued by the Indian government, it does not incur any cost, unlike the cost of manufacturing and insurance costs. gold jewelry. Even some costs are associated with gold coins and other forms of physical gold. In addition, investors also get annual interest in SGB’s investments, ”he added.
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(Disclaimer: The views / suggestions / advice expressed here in this article are solely by investment experts. Zee Business suggests that its readers consult their investment advisers before making a financial decision.)