The demand for gold strengthens during festivals such as Dussehra, Dhanteras and Diwali when buying gold is considered auspicious. While traditionally, people only bought gold jewelry and coins, of late investors have also started purchasing gold in paper forms such as gold exchange-traded funds (Gold ETFs), Sovereign gold bonds (SGBs) issued by Reserve Bank of India and Gold Mutual Funds (Gold MFs).
Paper or digital gold serves as one of the best investment options. These investments generate good returns and are classified as a capital asset for income tax purposes.
Here's a list of the digital forms of gold that investors may consider in the upcoming festive season:
Sovereign Gold Bonds (SGBs)
SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash, and the bonds are redeemed in cash on maturity. It is considered a safe way to invest in gold especially for those with a long investment window of 5-8 years. The Reserve Bank of India (RBI) issues SGBs multiple times in a year and fixes a price for each issuance. Users can also buy or sell SGBs in the secondary market.
The bonds bear interest at the rate of 2.50 percent (fixed rate) per annum on the initial investment amount. Interest is credited semi-annually to the bank account of the investor, and the last interest is payable on maturity along with the principal.
Nish Bhatt, Founder and CEO at Millwood Kane International, said that investment in gold through SGB is a decent option as it provides liquidity, doesn't require any storage cost and is easier to redeem.
On the flip side, SGBs have a lock-in period of 8 years and one can use the exit option only from the fifth, sixth and seventh years on the interest payment dates. Alternatively, if investors need to exit before 5 years, they will have to sell the SGB on the stock exchanges.
Gold ETFs
Gold ETFs allow individuals to invest in gold in a dematerialised format, which can be bought and sold on the stock exchange just like shares. Gold equivalent to physical quantity is deposited in an electronic form, in the purchaser’s demat account.
These are listed on the stock exchange, where one can get real-time updates about their price. ETFs don’t have any exit loads, which means investors can buy or sell the units at any time during the market hours.
Gold mutual funds
Gold mutual funds are open-ended funds that allows the citizens to invest without a Demat account. The gold fund units are determined by way of Net Asset Value (NAV), which is disclosed at the end of the trading hours. In this scheme, experts manage the investment professionally to create wealth and reduce risks.
Units of gold funds can be redeemed by selling them back to the fund house based on the NAV for the day.
Gold Fund of Funds (FOFs)
These are funds that invest in basket of mutual funds. They pass on the expense ratio of individual funds along with its own charges and that makes it slightly expensive.
Why should one invest in gold?
Here are key parameters that makes gold a decent investment:
| Parameters | Details |
| Safety | It is very safe to invest in gold as it is one of the oldest forms of investment that has the power to beat inflation |
| Liquidity | There is no issue in liquidity when it comes to investing in gold. It can be redeemed in cash anytime an investor wishes to |
| Returns | Look at the history of golds' inflation-beating rate. Whatever the situation of the market is, gold has always seen a rise over the passing years |
| Inversely related to Equity | Whenever the equity market falls, the rate of gold rises. Gold investment improves the overall portfolio of the investor |
(Source: Paisabazaar)
