Looking to invest in gold bonds? Know benefits, other gold investment options first
New Delhi: Indians’ love for gold is quite well-known and irrespective of its price and availability of other instruments, physical gold still remains the preferred choice.
With safer options like the Sovereign Gold Bond (SGB) or gold ETFs available for investment, it is advisable to avoid buying physical gold if you want to keep concerns like theft, metal purity, and safe storage at bay. For long-term investments, SGB and Gold ETFs are an attractive option because they provide interest earning as well as capital gain benefits.
Additionally, for a lot of people nowadays, digital gold has become a new avenue to invest in the yellow metal. Digital gold can be bought online and is stored in insured vaults by the seller on behalf of the customer. All you require is internet, mobile banking and you can invest in gold digitally anytime, anywhere.
Talking about buying Digital Gold, Ashraf Rizvi, Founder & CEO, Digital Swiss Gold & Gilded said, “This year, owing to the second wave of the pandemic and investor sentiment driven towards assets with long-term returns, customers are turning to digital options such as digital gold. Put simply, physical gold bought digitally and easily through a mobile app is digital gold.”
Rizvi further highlighted that digital gold has increasingly caught the eye of investors as it offers all the benefits of gold along with the ease of trading and transactions in smaller denominations. Customers get certified gold with quality assurance which is stored securely in vaults. There are no making charges associated with it, as is in the case of physical gold or jewellery, thus enabling greater savings to customers.
“Digital gold is the way to go for customers now and the future because of the unparalleled benefits it offers over physical gold purchase and other tools like gold ETFs and gold funds, where customers need to pay for the cost of the demat account as well as an annual maintenance cost, which is not the case with digital gold,” he said.
“Another option is the Sovereign Gold Bond which offers attractive pricing and an annual return, but, requires the secondary market to sell if you need access to your cash, this can be quite expensive and liquidity may not be available when needed, also, the required holding period is up to eight years so it is more like long term bond ownership,” Rizvi added.
Why invest in SBGs?
SGBs are issued by the government at regular intervals at the prevailing gold price. It has a fixed tenure of eight years, but can be sold after a lock-in of five years. However, if you hold SGBs till maturity, there will be no capital gain tax on the investment. You will get an interest of 2.5% annually, which will be paid semi-annually.
The quantity of gold for which the investor pays is protected since they receive the ongoing market price at the time of redemption/ premature redemption. SGB offers a superior alternative to holding gold in physical form. Also, risks and costs of storage are eliminated in the case of these bonds. Investors are assured of the market value of gold at the time of maturity and periodical interest.
Additionally, SGB is also free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in Demat form eliminating the risk of loss of scrip etc. According to experts, SGBs remain the best vehicle to participate in gold for the long term if the intent is to hold the bonds until maturity. One can also sell SGBs in the secondary market.
Clarice Moore is a veteran of the digital marketing industry. She’s helped grow and manage some of the world’s most successful companies, all while learning from and collaborating with some of the brightest minds in his field. His background includes project management, business development, sales management and product strategy.
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