Sovereign Gold Bonds Vs Gold ETFs

Sovereign Gold Bonds Vs Gold ETFs

In India, everybody wants to make investments so that their money can grow and can live their life peacefully. While talking about investments, many of us prefer gold as our beloved investment that our oldies used to tell us. Not only in Indian households, gold is a preferred investment medium among investors who are looking to get secured returns and exponential growth potential.

Is traditional gold the best to invest in? Well, absolutely not! Sovereign Gold Funds (SGBs) and Exchange-Traded Funds (ETFs) are two of the popular options that one may consider in today’s modern landscape. But it’s not as easy as it seems. Choosing the right option requires extensive research and time.

Planning to make an investment? If so, let’s dive into the definition of both, their benefits, key differences between the two, and more.

What Are SGBs?

Sovereign Gold Bonds are one of the best and easiest forms of investment that an individual can make. It allows the investor to invest in gold without running into hassles of owning physical gold. With SGB gold bonds, there is no need to worry about theft, unnecessary holding charges, and security.

These RBI mandate certificates are not market driven unlike stocks and most importantly, they act as a secure investment medium among abundant investors. Since the government of India issues these kinds of bonds, there is a specific opportunity set for individuals (usually a one week window) for subscription during which the SGB gold bond is issued in the investor’s name.

When it comes down to taxation, SGBs have a better tax advantage in comparison to physical gold investment options. The major highlight of SGBs is that anyone can buy them either via broker, online, or designated offices. Furthermore, the cost of buying SGBs is way too minimal than physical gold.

What Are The Benefits of Investing in SGBs?

Interested in SGBs investment? If so, don’t worry! Here is the list of the salient features and benefits of choosing SGBs over physical bonds.

  • Safety and Security

Having said that, SGBs are backed by the government of India. This makes them a safe and secure investment among investors with different risk appetite. Since there is the government’s involvement, you can rest assured that there will be no chance of cheating and fraud.

  • Tax Benefit

One of the biggest benefits of choosing SGBs is that they let you earn tax-free interest. The best part is that even no TDS is applicable on the taxes. Even if you try to withdraw the amount before the due date, then still you are free from capital tax gains. But here is the catch! Remember that the interest is applicable as per your income slab.

  • Fixed Interest Income

Another major feature and benefit of SGBs is that they have a fixed interest rate which is being paid out semi-annually. Unlike other traditional forms of investments like gold coins or jewelry, it offers higher returns.

  • Paper and Demat Format

The biggest feature and benefit of SGBs is that they are available in the form of paper and demat accounts. Not only does it eliminate the cost but also it helps in offering the convenience of owning gold. You will get a certificate in your own name and there is no chance that anybody can steal it.

  • Loan Advantage

Lastly, one of the key benefits of owning SGBs is that they allow the owner to take loan on their gold bonds. An individual can take up to Rs. 20 lakhs loan, making it an ideal investment for individuals of all kinds.

Understanding Gold ETFs

A gold ETF, as the name suggests, is a popular exchange traded fund that invests in gold. Just like our regular individual stocks, these ETFs are traded likewise on the stock exchange platform. If you want to enhance your portfolio to yield high returns, then these gold ETFs are easier to get and offer the best way to make an investment.

If you are an investor that prefers tracking the price of gold or you are genuinely interested in gold investments, then gold ETFs are the right choice. Over the past few years, these ETFs have surpassed many stock indices, thereby making them a preferred choice for many borrowers.

To make the most out of your investment, ensure you stay below 10% of your investment portfolio. Sticking to these numbers will help you build a strong portfolio and let you enjoy stable and higher returns.

What are the Features and Benefits of Gold ETFs?

Listed below are the key features and benefits of considering gold ETFs as your next investment.

  • Easy Access to Gold

There is no denying the fact that gold ETFs can provide quick, easy, and convenient access to gold without buying or borrowing physical gold. With such ETFs, investors can easily purchase gold shares that showcase the ownership of gold. The best part is that you don’t have to look for a gold locker or a safe to store it.

  • Liquidity

Another major feature and benefit of gold ETFs is that they are listed on popular stock markets during trading hours. Just like stocks, an interested investor can enter or exit the market and make an investment whenever they feel like. With such a kind of enhanced liquidity, it helps individuals to convert gold into cash in case of emergency.

  • Fractional Ownership

Another major feature and benefit of ETFs is that they allow individuals to have ownership of gold in units. The biggest benefit of considering such an investment medium is that it helps investors with limited budgets to buy gold who cannot afford it in physical forms. Whenever any need arises, these investors can sell their gold shares and earn money.

  • Cost-Effective

Having said that, gold ETFs will not break the bank if you use it wisely. Unlike buying and selling expensive physical gold coins or jewelry, gold ETFs have lower expenses and don’t require a separate place or a locker to hold. Thus, it helps in eliminating unnecessary upfront operational costs. It wouldn’t be wrong to say that it is a cost-effective investment opportunity as compared to physical gold.

  • Diversification

Gold ETFs provide diversification benefits to an investment portfolio. They allow investors to add an asset class with a low correlation to traditional financial assets like stocks and bonds. Gold has historically exhibited a negative or low correlation with stocks, which can help reduce portfolio volatility and provide a hedge against market downturns.

  • Transparency

Gold ETFs provide transparency in terms of the underlying assets. The ETF issuer discloses the gold holdings regularly, allowing investors to track the value and quantity of gold backing their investment. This transparency ensures that investors are aware of the gold exposure they hold through the ETF.

  • Tax Benefit

Lastly, another major feature of investing in gold ETFs is that they will give you tax advantage. In comparison to other investment opportunities like coins or jewelry, this kind of investment offers greater tax return. To have a better understanding about taxes, ensure you connect with a dedicated tax consultant and enjoy maximum benefits.

Key Differences Between SGB vs. Gold ETF

Let’s take a look at the key differences between SGBs and Gold ETFs.

ParametersSGBsGold ETFs
Tenure8-YearsNone
PaymentCan buy and make payments online easilyDigitally like any equity purchase
Lock-inIt is a tradable investment instrument and is listed on Stock exchanges like BSE and NSE.There is no lock-in period for gold exchange-traded funds.
Minimum Investment1 unit or 1 gram1 unit
Maximum LimitIndividual, HUF: 4 kg for each family member.No limit
Where to buyYou can buy sovereign gold from banks, stock brokers, and online investment platforms.You can buy gold exchange-traded funds through stock brokers.
Tradability/Exit RouteTradeable on an exchange; withdrawal from the 5th yearTradeable on exchange.
ReturnsThe return for SGB is greater than gold’s actual rate of returnThe return for GETF is lower than the actual return on gold.
Capital Gains TaxNo capital gains tax on appreciation if held to maturity.Long-term capital gains are taxed after three years.

Which is a Better Choice: SGBs Or Gold ETFs?

So, there you have it- SGBs or Gold ETFs! Though the choice between the two completely depends on your budget, risk appetite, investment goals, and more, you should know the right choice to make an investment.

If you are a kind of an investor with long term vision on maximum returns along with better tax benefit, then SGBs are an ideal option. On the other hand, if you want the flexibility to sell your investment whenever you want, then look no further than gold ETFs. The best thing about ETFs is that they can be easily and quickly traded on the exchange.

Frequently Asked Questions

Listed below are the frequently asked questions related to Gold ETFs and SGBs.

The major highlight of these investment options is that they both have no lock-in period.

If you want to purchase SGBs, then all you need to do is via banks, agents, and stock holding companies.

Yes, if you invest in SGBs, your money will be safe.

SGBs are issued by the Reserve Bank of India (RBI).

Though you can redeem your SGBs before the maturity period, it should only be applicable if there are no tax benefits or after 5 years from the issuing date.

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