When it comes to investments, gold plays a vital role in the asset classes as it is one of the preferred hedges against the volatility & a favored choice among Indian household families, with its contribution up to 40% of India’s Nominal GDP in FY19 and 7% to country’s GDP in terms of Gems & Jewelry Sector as per World Gold Council’s, January 2021 Report.
With the recent fall in the prices of gold from the highs of Rs. 58,000/10 gram, in 6th August 2020 to Rs.45,250/10gram on 31st March 2021, resulting to 20% fall from the high.
As, the demand of the gold has been subdued from the last couple of quarters due to the bull in the stock market. But with the recent fall, the demand has started taking a short drive among investors who are looking for safer option in the current volatile market.
Though today, investing in a gold has several options to choose from as compared to traditional choice of buying a physical gold or related ornaments. If you are planning to make one such investment in Gold, then here’s a look at the options available with its pros & cons.
|
Type of Options |
Physical Gold |
Gold ETF (Exchange Traded Fund) |
Sovereign Gold Bond (SGB) |
|
Security |
Less |
High |
High |
|
Purity |
95% or Less |
999 |
999 |
|
Charges |
Storage, Labor & Making Charges |
Low Expense Ratio |
No Charges |
|
Interest |
Nil |
Nil |
Fixed 2.5% p.a. payable semi-annually |
|
Tenure |
No |
No |
8 Years |
|
Tax Benefit |
20.8% LTCG with Indexation. For STCG, it is taxable as per Income Slab |
As per tax slab if sold within 3 years. Otherwise, 20.8% LTCG with Indexation |
Zero Capital Gain Tax on Maturity.
|
|
Tradable |
Physical Market |
Exchange |
Exchange |
|
Lock-in Period |
No |
No |
5 Years (Can be sold on the exchange before 5 years but attracts to Tax as per the slab) |
|
Liquidity |
High |
High |
High |
|
Mode of Holding |
Physical |
Demat |
Demat |
|
Prices |
Domestic Prices with added charges |
In line with Gold Prices. Reflected through NAV |
Prevailing Market Prices |
Conclusion
From an investment perspective, SGBs has an added advantage over the ETFs & Physical gold in terms of Fixed Interest Payment & Zero Charges. For those who are looking for long-term investments who doesn’t need funds over the period of 8 Years, then SGB would be the preferred choice for the portfolio. And as per general rule, 5-10% of gold investment in your portfolio can provide stability against market crash due to its low correlation with equities.
