Dhanteras 2020: Sovereign gold bonds vs gold mutual funds vs gold ETFs
2 min read 12 Nov 2020, 11:17 AM ISTGold funds or gold ETFs are typically seen as more liquid options than sovereign gold bonds.
PremiumIn Indian tradition, buying gold during Dhanteras is considered as a symbol of luck, prosperity and auspiciousness. This yellow metal has delivered healthy returns over the long term and has become an asset that provides financial security in these times of crisis. Gold is considered to be a hedge against inflation and is inversely correlated to equities. When there is high volatility in the financial markets, gold provides stability to the portfolio. If you are looking to invest in gold, here are some options other than physical gold to invest this Dhanteras.
Sovereign Gold Bond (SGB)
Sovereign Gold Bond is issued by Reserve Bank India on behalf of the Government of India. The bonds are denominated in multiples of grams of gold with a basic unit of 1 gram and the minimum permissible investment is 1 gram. Sovereign gold bonds offer an annual interest rate of 2.50% to the investors. These bonds have a maturity period of eight years with an exit option after fifth year. The redemption price is based on the then prevailing price of gold.
Experts say that sovereign gold bond is an effective way to invest in non-physical gold, if a buyer holds on till maturity. Capital gains, if any, at maturity is tax-free. This is an exclusive benefit available on gold bonds.
The eighth tranche of sovereign gold bonds of this fiscal is open and will close on November 13.
Gold mutual funds
A gold fund is an open-ended mutual fund scheme investing in units of gold ETFs. This does not require a demat account. An investor can invest and redeem from gold funds just like any other mutual fund. Mutual funds also offer international gold funds which invest in the units of overseas gold funds. Mutual fund experts believe international funds are very risky and are not suitable for retail investors. Only those who understand international markets may invest in them.
Gold ETFs
Gold ETFs or exchange-traded funds are listed on the exchanges and invest in physical gold. Each unit of a Gold ETF represents 1/2 gram of 24 karat physical gold. Gold ETFs provide ample liquidity as these can be sold on exchanges anytime. Gold ETFs are traded on the exchange at the prevailing market price of physical gold, thus investors can buy or sell holdings at close to the market price, without paying a premium on purchase or selling at a discount.
Each and every ETF unit is backed by 24 carat physical gold, held in secure vaults, and is completely insured.
Gold funds or gold ETFs are typically seen as more liquid options than sovereign gold bonds.
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