The shining yellow metal is not just limited to physical touch to have a sense of an investment. In fact, there is now a vast pool of gold investments available giving a sense of security and market-related returns to investors who are keen on gold. Just like its name, gold indeed is seen as an opportunity for hedging returns even amid economic uncertainties. Golds are seen as a safe haven when inflation is way too high which generally leads to a sharp correction in the equities. The year 2022 so far has been no different with geopolitical tension, inflationary pressure, supply-chain disruption, and economic risks playing a major role in impacting the market. However, gold itself has the potential to protect the investment.
Currently, there are five different options in which you can invest in gold. Those are gold ETFs, gold mutual funds, sovereign gold bonds, digital gold, and physical gold.
To ascertain your preferred type of gold investment, weigh the pros and cons of these options.
According to CA Manish P. Hingar, Founder at Fintoo, for instance, when it comes to having a Demat account, only gold ETFs make it mandatory for investors to open a Demat account before investing. The risk of theft or purity will only concern you if you invest in physical gold, as these are the only ones you can hold physically. It includes gold bars, bullion, jewellery, etc., Although, for digital gold, you might have to mandatorily take physical delivery after a specified time, say 5 years or sell gold or pay extra charges.
Further, the Fintoo founder explained that all these gold investments also offer high liquidity. However, sovereign gold bonds have a lock-in period of 5 years. If the sovereign gold bond is held till a maturity period of 8 years, no tax will be applicable on the capital gain. These bonds provide a 2.5% interest rate on a semi-annual basis. For the rest gold investment options, STCG will be taxed as per your slab rate, whereas LTCG will be taxed at 20% with the benefit of indexation. 3% GST will only be applicable on physical gold and digital gold.
Issued by RBI on behalf of the government, sovereign gold bonds are available to resident individuals, HUFs, Trusts, Universities, and Charitable Institutions. The tenure of the scheme is eight years, while it offers a fixed rate of 2.50% per annum payable semi-annually on the nominal value. These gold bonds are also eligible for trading. Further, they can be used as collateral for loans.
Explaining one of the advantages of sovereign gold bond against its counterparts, Manish said that it does not have any charges. Meanwhile, physical gold has making charges of around 20-25%. Gold ETFs have a brokerage charge of around 1%. Gold mutual funds also have an expense ratio of approximately 1%. Digital gold includes additional charges of 3% for storage, insurance fee, etc.
Also, Manish pointed out that physical and digital gold is not regulated by SEBI, unlike gold ETFs and gold mutual funds.
Gold ETFs are like the alternatives of physical gold, however, they are invested in the physical form. Gold ETFs combine the flexibility of stock investment and the simplicity of gold investments.
Meanwhile, apart from being regulated by Sebi, gold mutual funds are open-ended funds that invest in gold and gold-related instruments such as bullion, coins, etc. These funds are used for creating wealth for investors amidst economic shocks using gold as a commodity. You can invest in gold mutual funds through a Systematic Investment Plan (SIP) and just like every other normal SIP, investors can invest a fixed amount on a monthly basis for their future goals.
Thereby, he said, you can invest in these alternatives at your convenience. Except for sovereign gold bonds as they only permit you to invest when SGBs are open for subscription, which is usually around 3-4 times in a year. And if you are looking for a SIP investment, then gold mutual funds might be the right fit for you.
As per Good Returns data, a 10 gram gold in 22 carat is priced at ₹49,950 on Sunday up by ₹250 from the previous day. Also, the 24 carat gold in the same gram rose by ₹270 to ₹54,490 against the previous day.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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Read More:SIPs, ETFs, physical or bonds? Pros and cons of different ways to buy gold
2022-12-18 07:34:30
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