Why Investing In Gold ETF & SGB Is Better Option Than Investing In Physical Gold

Investing in gold will not only provide you with good return but can also be a hedge in the portfolio to deal with volatility. In India, gold has a cultural value, it represents symbol of wealth, status, valuable to store and part of many rituals. Plus it provides a sense of security in form of jewellery as an investment.

Gold demand

Historically the gold demand has grown. "Indian gold demand remained robust compared with longer-term pre-pandemic levels. Annual gold demand jumped 18% to 4,741t, almost on a par with 2011 - a time of exceptional investment demand. The strong full-year total was aided by record Q4 demand of 1,337t", as per the World gold council's report. The jewellery consumption softened a fraction in 2022, down by 3% at 2,086t. Much of the weakness came through in the fourth quarter as the gold price surged.

Investment demand reached 1,107t (+10%) in 2022. Demand for gold bars and coins grew 2% to 1,217t, while holdings of gold ETFs fell by a smaller amount than in 2021 (-110t vs. -189t), which further contributed to total investment growth.

But, instead of investing in physical gold you can invest in this precious yellow metal through gold funds, exchange traded funds, sovereign gold bonds or even multi asset allocation funds that have gold holdings.

The biggest advantages of investing in gold through these options is

• You can invest in gold without actually tangibly holding it.
• You do not have to face storage problems or worry about theft.
• It is free from issues like the costs of making charges and purity, as in the case of gold in jewellery form.
• Tax applicable will be same as physical gold, as per income tax slab if the investment is sold before 3-years.

Difference between sovereign gold bond, gold etfs and physical gold

	Sovereign Gold Bonds	Gold Etfs	Physical Gold
Investment mode	Bonds issued in form tranches by RBI for a term of 8 years	Fund house launches through new fund offer and traded on stock exchanges	From jewellers
Purity	As per the gold bullion standards	0.995 purity	Differs
Storage	In demat form of RBI books	Demat form	Lockers
Interest income	At 2.5% per annum in the form	No interest paid	No interest income
Liquidity	At a discounted value	It trades close to the fair price	At a discounted price
Lock-in period	5-years	Not applicable	Not applicable
Taxation if held till 3 years or more	If redeemed: At maturity, exempted from the capital gains tax on redemption. Before maturity, long term capital gains tax is applicable and it will be at 20% with indexation.	20% long term capital gains tax with indexation, i.e. adjusting for inflation on capital gains is applicable.	20% long term capital gains tax with indexation, i.e. adjusting for inflation on capital gains is applicable.

Disclaimer

Investments are subject to market risk. The above-mentioned information is purely informational and doesn't guarantee any return. Greynium Information Technologies and the Author are not liable for any losses caused as a result of a decision based on the article.