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Tata Capital > Blog > Wealth Services > Sovereign Gold Bond vs Gold Mutual Fund vs Gold ETF

Wealth Services

Sovereign Gold Bond vs Gold Mutual Fund vs Gold ETF

Sovereign Gold Bond vs Gold Mutual Fund vs Gold ETF

Owing to its high stability and intrinsic value, gold has been a key investment avenue for centuries. Today's dynamic financial landscape has made it easier for investors to invest in this precious metal without holding it in a physical form.

They can invest in gold through various options such as Sovereign Gold Bonds (SGBs), Gold Mutual Funds, and Gold Exchange-Traded Funds (ETFs). While each of these investment vehicles is backed by the security of gold, they differ in terms of operation, liquidity, risk, and potential returns.

In this article, we'll break down these three gold investment options to help you understand which investment avenue best aligns with your financial goals and strategies.

Sovereign Gold Bonds (SGB)

Introduced by the Reserve Bank of India (RBI) in consensus with the Government of India, SGBs offer a unique way to invest in gold. They are denominated in grams of gold and offer the same benefits as physical gold, with added advantages. SGBs have a fixed tenure, usually eight years, with an option to exit after the fifth year on interest payment dates.

Investors pay the issue price in cash and the bonds are redeemed in cash upon maturity. These bonds pay a fixed interest rate, presently at 2.5% per annum, on the initial amount of investment. They are suitable for investors looking to invest in gold for the long term without physical possession.

Gold Mutual Funds

Gold Mutual Funds (MFs) are another avenue for investing in gold, allowing investors to gain exposure to the precious metal without directly purchasing it. Gold MFs are open-ended mutual fund schemes that invest in gold bullion and companies involved in gold production, processing, or mining.

These funds pool money from various investors to invest in a diversified portfolio related to gold. They are ideal for investors who want a professionally managed portfolio and are looking for exposure to gold as an asset class. They are also suitable for those who wish to invest in gold without the complexities of handling physical gold, like storage and purity concerns.

Gold Exchange-Traded Funds (ETFs)

Gold ETFs are another popular option to include gold in your investment portfolio. These are open-ended investment funds traded on stock exchanges, just like stocks. Each unit of a Gold ETF represents ownership in gold bullion, with the purity and quantity backed by actual gold holdings.

One of the biggest advantages of Gold ETFs is their high liquidity. Investors can buy and sell units of Gold ETFs on the stock exchange during market hours. This option is suitable for investors looking for a more cost-effective and transparent way to include gold in their portfolio.

SGBs vs Gold MFs vs Gold ETFs

CriteriaSovereign Gold Bonds (SGBs)Gold Mutual FundsGold ETFs
Nature of investmentGovernment securities backed by goldMutual funds investing in gold bullion and related stocks   Exchange-traded funds tracking the price of physical gold
LiquidityModerate (premature redemption is allowed after 5 years)High (can be redeemed on demand)High (traded on stock exchanges)
ReturnFixed interest plus potential capital gains based on gold pricesDepends on gold prices and performance of gold-related stocksBased on the current market price of gold
TaxationExempt from tax if held until maturity;,  As per individual’s slab rate

Wrapping up

Selecting the best option between SGBs, Gold MFs, and Gold ETFs depends on your investment objectives, risk tolerance, liquidity requirements, and tax considerations.

To make an informed decision, avail of professional guidance from the experts at Tata Capital Wealth. We'll evaluate your goals, risk profile, and investment horizon to help you select the best option that aligns with them. Visit Tata Capital website to start investing securely today.

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