Gold ETFs are traded in the secondary market and investors can buy and sell ETF units in the secondary market at any point in time.
I invest in systematic investment plan and go for dividend payout. Is it better to opt for growth option?
— Akash Batra
Dividend options are used by investors seeking a regular income from their investments. However, dividends are not guaranteed. Mutual funds pay dividends out of any investible surplus, which are in essence a return of your capital invested. This return of capital defeats the purpose of investing which is to grow your investment corpus. Also, dividends are currently taxable in the hands of investors at their marginal rate of tax. Investors would therefore lose out on the favourable tax treatment on long-term capital gains offered by mutual funds. Hence, the growth option is better than the dividend payout option.
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What is the difference between Sovereign Gold Bonds and gold exchange traded funds (ETFs)?
— Dhiraj Sharma
No, gold ETFs are not subject to any lock-in. Gold ETFs are traded in the secondary market and investors can buy and sell ETF units in the secondary market at any point in time, subject to available liquidity. Only SGBs have a lock-in of 5 years (total tenor of 8 years) from the date of issue. Issued by the RBI, they are government securities denominated in grams of gold. SGBs offer an interest of 2.5% per annum (paid semi-annually) besides the potential to benefit from price appreciation. Also, capital gains on redemption are exempt from any tax for individuals. SGBs are listed on stock exchanges and can be traded among market participants.
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I want to build a corpus for my child’s higher education. How should I invest in mutual funds?
— S Radhakrishnan
Funds categorized as ‘Children’s funds’ are subject to a lock-in of either five years or till the child attains 18 years (age of majority), whichever is earlier. Children’s funds invest in a mix of equity and debt instruments with an objective of either wealth or income generation.
Given the lock-in period with an aim to encourage investors to remain invested, these funds do not offer any benefit to investors relative to other categories. Hence, it is advisable to consider other pure-play equity and debt funds to have better control over the desired asset allocation and select funds with a long-term track record.
