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GOLD – buy in any name is still GOLD

Posted By: Admin

Gold investment is one of the biggest sentiments in India. Almost every person will try to have a gram of gold bare minimum. While Physical gold, like jewellery, coins are used for personal purposes by most people, it is not considered as investment in personal finance.  However  Gold has to be part of our asset allocation, due to the unique bond gold has with inflation & Equity assets. Everytime there is inflation and Equity markets are not doing great, Gold will do well. So it has an inverse relationship with Equity and hence is a valuable hedge investment in a portfolio. Apart from Physical Gold, we do have other options to invest in gold in electronic form. One is Sovereign Gold Bonds & the other one is Gold Mutual fund. Let’s see the difference.

Sovereign Gold Bond ( SGB)- 

Sovereign Gold Bond ( SGB) came into notice when the union budget was announced in 2015-2016. These bonds are issued by the RBI on behalf of the government of India. SGB are part of the government's borrowing programme. The best part is the investor does not have to incur making/wastage charges and still get 999 purity. If it is purchased through digital mode, the government is offering a Rs.50 discount. SGB gets a 2.5% interest on your initial investment till it is held. The interest will be taxable in the hands of the investor. It  also has a lock period of 5 years. SGB has a maturity period of 8 years. If the bond is getting holded for 8 years there will be capital gain exemptions  for individuals. Minimum investment is 1gram of gold, the maximum is 4kg for individual & HUF. For entities like trust & university 20kg of gold is acceptable. Certificate will be provided for a proof of your investment. SGB are accepted as collateral while availing loans. It can also be traded in the secondary market. If the bond is being sold before three years the gains are considered as short term and will be added to your slab. If it is getting sold after three years the gain is considered as long term and will be taxed at 20% with indexation benefit.

Gold mutual funds - 

It is an open - ended fund. Where the underlying asset is Gold Exchange  Traded Fund (ETF). Gold Mutual fund does not invest in direct physical gold. This fund will invest in Gold ETF which will invest in physical gold. These funds are managed by Mutual Fund houses. There is no lock in period. Exit before 1 year in  Gold mutual funds have an exit load. One can invest in lump sum as well as in SIP format in gold mutual funds. Minimum investment is Rs.1000. If these funds are redeemed before three years the gain is short term, which will get added in your slab rate. If a person holds it for more than three years it is considered as long term which is taxed at 20% with indexation benefit.

Conclusion - 

Both electronic forms of investment in gold are advisable. If a person wants to invest in SIP form he has to invest in gold mutual funds which is not possible in SGB. If a person wants to earn interest on an annual basis and also generate long term returns on gold  he has to invest in SGB and should wait for 8 years to get the benefit which is not possible in Gold Mutual Funds. 

By Narayanan

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