Sovereign Gold Bonds Vs Gold ETFs Vs Gold Mutual Funds: Where Should You Invest These Dhanteras?

Many in India buy jewelery and gold coins during Dhanteras for a traditional consumer-oriented requirement. This could also remain the same this year, especially considering the fact that gold prices have risen by more than 31% in the last year, mainly due to the economic uncertainties brought on by the Covid-19 pandemic.

However, from an investment perspective, there are also other ways to invest in gold besides buying physical gold items. Traditional reasons aside, if you are looking for a way to safely invest in the yellow metal, sovereign gold bonds (SGB) might be your best alternative, especially if you have a long investment window of 5-8 years. . The central bank issues SGB several times a year and sets a price for each issue.

You can also buy or sell SGB on the secondary market. You can invest anywhere from one gram to four kilograms of gold in SGB. “These are safe as they are issued by the government and the returns are proportional to the returns on gold. They also have an additional fixed interest rate of 2.5% per year. Capital gains on gold bonds are also tax free. This makes it very similar to having physical gold with a 2.5% annual bonus. On the other hand, SGBs have a 5-year lock-in period and you can use the exit options only from the fifth, sixth, and seventh year on the interest payment dates. Alternatively, if you need to exit before age 5, you will have to sell the SGB on the stock exchanges, ”says Adhil Shetty, CEO of BankBazaar.

If you are looking for a more liquid option, you can consider gold ETFs. Gold ETFs allow you to invest in gold in a dematerialized format, which can be bought and sold on the stock market just like stocks. The unit price of any ETF is usually tied to the price of a 24k gold gram. These provide returns commensurate with the returns on gold and are good options if your investment window is shorter.

However, unlike SGBs, there is no fixed interest income above the sale price of gold in the case of ETFs. ETF earnings are also taxable. Short-term earnings are taxed according to your income tax plan and long-term earnings are taxed at 20.6% with indexing benefits. However, keep in mind that you must have a demat account to invest in gold ETFs.

You can also invest in gold mutual funds, especially if you want to make regular investments rather than a one-time investment. Gold mutual funds are variable capital investments, based on units provided by the Gold Exchange Traded Fund. Many mutual fund houses closely monitor the value of gold and have gold-backed mutual funds that you can invest in via SIP. This makes investing very rewarding. Gold fund units can be redeemed by selling them back to the fund house based on the NAV of the day. However, unlike ETFs, gold MFs can have an exit charge, making them more expensive.

“From an investment perspective, however, you should invest in gold only after evaluating your existing portfolio and assessing your expectations for returns, risk appetite, and liquidity requirements. Ideally, gold should make up no more than 5-10% of your investment portfolio, as gold prices tend to stabilize over long periods of time. Therefore, despite the recent upward trend, gold alone may not be enough to reach your long-term financial goals on time, ”Shetty reports.