After a powering ascent that ended in reclaiming the coveted peak of Rs 73,000, gold is now pulling downwards. This reversal of fortunes begs a critical question: With the luster of gold seemingly fading, is it still a prudent investment for individuals investing in safe-heaven?
Apart from its sentimental value, it is also a preferred investment, especially in times of market volatility. Owing to its easy liquidity, gold has become alluring over the years due to global uncertainties. Though people conventionally buy gold to mark auspicious occasions, an equally large number also invest in it for easy liquidity for emergency.
Read More: NPS vs PPF: Which One Is Better For Securing Your Financial Future?
Adhil Shetty, CEO, BankBazaar.com, says, “While physical gold remains a popular investment option, digital forms of gold such as gold mutual funds, and sovereign gold bonds are convenient and safer alternatives. The major difference between physical and gold mutual funds is that the former comes in the form of tangible assets like jewellery, coins, or bars which investors can directly possess. Gold mutual funds, however, allow you to invest digitally in stocks of gold mining companies or exchange-traded funds (ETFs) which are backed by the value of physical gold. They provide exposure to the market without the need to own or worry about storing physical gold. Unlike physical gold which can be impure, gold ETFs ensure clarity, genuineness, and purity of gold, thereby mitigating the risk of procuring impure products.”
Moreover, when deciding between physical gold and gold mutual funds, one must first assess their financial goals to decide on a suitable investment. “If you are a long-term investor looking at capital growth and portfolio diversification, choose gold mutual funds. If you have short-term needs or cultural needs, physical gold may be more suitable for you,” said Shetty.
Read More: Loan against SIP: How to get loan against Mutual Fund units online in SBI – Steps
Also, assess your investment in terms of returns. In the case of physical gold, the expected returns would depend on the current gold price. For gold ETF, the value would depend on the price of the ETF. In terms of storage costs, the fund house maintains all aspects of the ETF by paying an annual fee. On the other hand, storing gold necessitates a secure arrangement like a safe to prevent theft.
What about SGBs?
While physical gold has always been a favourite among Indians, Sovereign Gold Bonds (SGBs) scheme launched by the Reserve Bank of India in 2015 has also attracted its fair share of investors due to the double digit gains they have posted every year since then.
Read More: India’s Forex Reserves Fall $2.41 Billion to $637.92 Billion; 3rd Consecutive Weekly Decline
SGBs underline the benefits of annual interest and exemption from capital gains if held until maturity.
SGBs offer a unique tax advantage. The interest income from these bonds is taxed according to the investor’s tax bracket. However, if the SGBs are held until maturity, the capital gains are exempt from taxation. Hence, from a tax perspective, SGBs are considered to be an efficient medium of investing in gold. The scheme offers interest at 2.5% per annum, payable semi-annually, which is taxable as per the individual’s tax slab; however, TDS shall not be applicable. Its tenure is 8 years, and early withdrawal can be made from the 5th year onwards.
Gold’s versatility makes it a value-adding asset in diversifying an investment portfolio, performing well, particularly during times of economic uncertainty. However, the choice of investment avenue– physical gold, gold mutual funds, or SGBs – should be aligned to individual financial goals and investment horizons.
