There’s no doubt that gold holds immense value for Indian households and is more than a precious metal. In fact, it is considered auspicious to buy gold on occasions such as Dhanteras and Akshaya Tritiya. However, from an investment point of view, investing in physical gold may not fetch you the best returns. But that doesn’t mean investing in gold is not fruitful anymore. Instead, you can pick alternate forms of investing in gold, such as – SGBs and Gold funds.
These investment instruments allow you to invest in gold without having to purchase it in physical form. Read this article to learn more about the two options and determine which one is a better investment.
What is an SGB?
Sovereign Gold Bonds (SGBs) are government securities that are issued by the Reserve Bank of India. Essentially, they are the substitutes for physical gold and are thus, denominated in grams. By investing in SGBs, you can own gold but not in a physical form and earn steady interest on it.
Furthermore, with SGBs, the quantity of gold you purchase remains protected because you get the current market price at the time of redemption. If you invest in SGBs, you must pay and redeem the price in cash. What’s more, these bonds can be converted into Demat form and traded on the stock exchange, which is pretty convenient.
What is a gold fund?
Gold funds are a variant of mutual funds that directly or indirectly invest in gold reserves. The investment is made on stocks of mining companies, gold distributing and producing syndicates, and physical gold.
Moreover, these are open-ended investments that invest in units of a Gold Exchange Traded Fund (ETF). You can diversify your investment portfolio by investing in gold funds and create a safety cushion against market fluctuations and collapse.
Additional Read: What is Digital Gold? Why Should One Invest in It?
Which is the better investment option?
Now that you have a brief idea about SGBs and gold funds, let’s compare the two investment options on similar parameters.
Since SGBs are issued by RBI on behalf of the government, you get a sovereign guarantee on the principal repayment and payment of interests. Therefore, you can be assured that you will get your dues back on maturity. This is why SGBs are one of the safest methods to invest in gold.
Further, gold funds are also a safe investment option as they are regulated by the Securities and Exchange Board of India.
Gold funds can be liquidated without much hassle and are easier to trade. Hence, they are ideal as a financial cushion against financial contingencies. On the contrary, SGBs are not as liquid as gold funds and are beneficial if the investment is held until maturity.
SGBs are an excellent tax-saving option and will fetch you maximum benefit if you hold your bonds till maturity. However, the interest you earn on the bonds is taxable under the Income Tax Act, 1961.
Additional Read: The relationship between economic downturns and gold
Needless to say, both investment options are safer than investing in the physical form of the precious metal. However, there is no clear winner. Consider your financial goals to determine which option is better for you.
And when you are ready to begin your investment journey, make sure to download Tata Capital’s Moneyfy app to manage your wealth seamlessly!