Sovereign Gold Bonds, gold ETFs and gold funds are gaining popularity due to their distinctive features
By Surbhi Jain
Gold is one of the most preferred assets in India. It is an asset which every investor should have in his portfolio, as it gives diversification, liquidity, growth, security and is a hedge against inflation. While most people buy gold in physical form, there are other modes of investment in the precious metal.
Sovereign Gold Bonds
Sovereign gold bonds (SGB) are issued by RBI and act as a substitute for physical gold. These bonds are denominated in terms of grams of gold and are preferred by investors as there is no cost of storage. A person who is resident in India can buy these bonds. Eligible investors include individuals, HUFs, trusts, charitable institutions. If the residential status of an individual changes, he can continue to hold these bonds until maturity. Joint holders and minor through guardians are also allowed to invest.
An investor has to buy a minimum of one gram of gold. The maximum purchase for a year is four kilograms of gold for individuals and HUFs, 20 kg for trusts and similar entities. SGBs offer interest of 2.5% per annum. The amount is credited in the bank account on a quarterly basis. On maturity, the amount is paid based on the average price of the previous three working days. The tenure of the bond is eight years, premature withdrawal is allowed after the fifth year and can be sold on exchanges if held in demat form.
Interest received during the holding period is taxed as per income-tax laws but the capital gain which arises on redemption of these bonds after maturity is exempt from taxation. These bonds are issued in series and the next upcoming series will be issued in August. These bonds are attractive as they are issued by the government and so give a sense of safety to the public.
Exchange traded funds (ETFs) are commodity-based mutual funds. In gold ETF, the commodity is the precious metal. Investment in gold ETF is ideal for all types of investors, as it can be purchased in the smallest denomination of one unit, which is one gram of gold. There is no entry or exit load while investing through ETF.
Gold funds are schemes offered by the mutual funds which further invest in gold companies. An investor can diversify risk by investing in gold and eliminate the risk of investing in physical form. Investment in these funds does not require a bigger amount. It can be as low as Rs 500 through SIP mode. Gold funds offer liquidity as the amount can be redeemed within three days.
Source: Tax Guru