When it comes to gold investment in India, most financial planners advise investors to buy two assets – Gold ETFs and Sovereign Gold Bonds(SGB). Unlike physical gold, which requires huge money investments, both these instruments are low-cost options to invest in gold. However, the investor will not get any physical possession of the yellow metal if they choose to invest in Gold ETF and SGB. Both the instruments are paper gold held by the investor until she/ he wants to redeem it.
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According to investment experts, the two instruments are designed to suit different classes of investors. Those looking to invest in gold for a short term keeping liquidity in focus can opt for Gold ETF, while those who wish to stay invested for the medium or longer term can go for SGB as it offers assured returns and income tax benefits on maturity.
Although both the instruments are a hedge against inflation, gold ETF is better for those who have a small timeframe for investment, Manikaran Singhal, founder at goodmoneying.com, told Mint while speaking on sovereign gold bond vs gold ETF.
Further, from the point of view of liquidity, gold ETF is a better option as sovereign gold bonds have an eight-year lock-in period for those investors who want to avail the tax exemption on capital gains on the maturity amount.
An investor selling SGB after three years but before maturity will have to pay long-term capital gains tax of 20 percent. In case of gold ETF, the gains are subject to capital gains tax when the investor sells it.
Investors have the option of partially withdrawing the funds from SGBs after the 5th, 6th and 7th year. These instruments can be sold in the secondary market.
According to wealth planners, investors should not look at gold as a short-term asset and should invest with a long-term outlook.
"Those who want to trade in gold for a short-term gain should base their allocation purely on individual risk-appetite and knowledge level,” Rahul Agarwal, director at Delhi-based Wealth Discovery, told NDTV Profit, adding that the price trend of the yellow metal over a long period reveals that “gold is a generational asset".
Those who want to balance their investment portfolio over a longer period of time can opt for buying the precious metal periodically until their allocation reaches 10-15 percent of overall asset portfolio, Agarwal advised. However, the strategy is best not adopted by an average investor as immediate-term gold investments are subject to market volatility.
(Edited by : Sudarsanan Mani)
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