Digital Gold | Gold ETF | Sovereign Gold Bonds | Bonds
Indians love gold. The gold produced in India cannot meet the demand. Hence India imports tons of gold every year. In the FY 2019, 983,000kg of gold. This precious metal is irreplaceable. Rather than consumption, if you want to buy gold for investment purposes, then here are few gold investment options.
Gold Investment Options in India
It is a digital form of gold issued by Minerals Trading Corporation of India.The investor can buy or sell digital gold via an agent on an online platform. Investors can convert the digital gold into physical gold and receive the delivery. You can buy digital gold via mobile apps such as Google Pay, Paytm, and PhonePe.
You can start investing in digital gold with Rs. 1 also. And that is why people go for digital gold. If you have to buy physical gold, you need to buy at least one gram of it. One gram of gold charges around Rs. 5000. They can be brought and sold easily online. Maintenance cost and GST together will charge you 6%. Hence effective returns will be less by 6% than gold returns. Most digital apps allow you to hold digital gold for a limited number of years (mostly 7 years). After that, you need to take physical delivery of the digital gold or sell the units. The more significant concern here is that there is no regulatory body to control the digital gold business.
Gold ETFs are commodity-based securities that invest in gold companies or gold refineries. They follow the gold index on the National Stock Exchange. These are low-risk investments present in both dematerialized and paper form. Every one unit of Gold ETF represents one gram of 24 carat gold. Gold ETFs are listed on the NSE, and Asset Management Company takes the responsibility of trading them online.
In the case of Gold ETFs, the minimum investment is the price of one gram of gold. The maintenance cost is 0.5-0.1%. SEBI regulates them, and the physical gold brought is also audited regularly by the statutory bodies. The risk here is the volatility of the gold price. There is redemption, but you can sell them in the stock market at the current market price. And gains are taxable as per the tax slab.
Gold MFs are funds that invest in multiple Gold ETFs. They are also called Fund of Funds. They are similar to Gold ETFs, but a professional fund manager manages Gold MFs.
The minimum investment amount is Rs. 100. They are readily available, and they are liquid in nature. The maintenance cost double the cost involved in gold ETFs. The maintenance charge is around 1.5 – 2.5 %. The effective gold returns from Gold MFs are 2.5 % lesser than the returns from physical gold. The gains from Gold MFs are taxable.
Sovereign Gold Bonds Schemes
SGBs are denominated in grams of gold. SGBs are derivative instruments issued by the RBI, where investors will own gold in a certificate format. They are available periodically. SGBs are issued by RBI once in a month or two. You can buy them from Stock Echange, selected banks, and Stock Holding Corporation of India. As the GOI backs them, they are safe to invest in, and they are insured. SGBs offer a fixed rate of interest of 2.5%. SGBs are tax-free if they hold them till maturity, i.e., eight years else, you will be taxed as per your tax slab. You cant redeem these bonds before five years. After the completion of 5 years, you can save them whenever RBI opens a window. RBI opens a redemption window twice a year. The dematerialized form of SGBs can be sold in secondary markets. SGBs are not very thriving in the secondary market; hence, the seller has to offer a good discount to sell these SGBs. SGBs are usually sold at the discount of 2% – 6%. You can take a loan on SGBs, and the loan amount varies from bank to bank.
Is physical gold safe?
Risks involved in physical gold are-
- Making and designing charges
- Storage expenses
- GST of 3%
These charges may come up to 10%. And if you wish to sell physical, you need to produce origination and purity certificates. Else you need to sell at a discount.
Equity and gold prices both are volatile.
|Digital Gold||Gold ETFs||Gold MF||SGBs||Bonds|
|Liquidity||High Liquidity||Medium Liquidity||High Liquidity||Low Liquidity||Moderate Liquidity|
|Cost||3%||0.5 – 0.1%||1.5 – 2.5%||NA||NA|
|Tax||3% GST||Capital Gain Tax||Capital Gain Tax||Tax-free & early redemption taxable||No TDS only Capital Gain Tax|
|Risk||No regulatory body||Gold Price volatility||Gold Price volatility||No risk||Low risk|
|Returns||Not fixed Linked to the gold price||Not fixed Linked to the gold price||Not fixed Linked to the gold price||Fixed: Gold returns + 2.5%||8-12% P.A.
Gold and equity both are volatile. Gold investments such as digital gold, Gold-ETFs, and Gold MFs attract the cost of maintenance, exit loads, and taxes. SGBs are profitable if you are determined to hold them for the whole eight years. In case you are looking for fixed income instruments that are liquid in nature. Then you can think of Bonds.
Bonds and Debentures
Bonds are debt securities issued by government bodies or corporates. The issuer can raise capital via bonds. The capital raised can be utilized for business operations or expansion. The bonds offer fixed interest paid regularly. And the investor gets the principal;l amount back on the maturity.
The advantages of the bonds are – As they are low-risk securities, they are relatively safer
- They offer fixed income that can meet the financial requirements of the investors
- They can be sold or brought at any point of time at the current market price without any exit load.
- TDS is not deducted on bond gains.