Do you have the ‘Right’ gold to get the ‘Right’ returns?
So in this episode, we'll compare few alternatives of buying Gold to generate maximum returns.
So here we have 5 contestant
Physical gold | Digital gold | SGB | Gold ETF | Gold mutual fund
Physical gold: If you believe that buying physical gold/jewelry would be better then, let me tell you it's exactly the opposite.
Making charges ranges from 6% to 15% (depend on jewelers )
Digital gold: Digital gold can be bought online and store online. Some good companies are
MMTC
Safegold
Augmont
Advantages of buying digital gold
Theft proof (as companies store it for you)
Zero making charges
Disadvantages of buying digital gold
Storage cost
GST
Companies profit
3% to 6% spread on transactions
Capital gain tax.
SGB (Sovereign Gold Bond) :
These are government securities denominated by Gold. These bonds are issued by RBI ( Reserve Bank of India) on behalf of the govt. Hence this gold is as good as physical gold. The purchase and redemption of this bond is made in terms of cash and not gold.
SGB has 0% GST, zero making charges, a discount of INR 50/gms on online buy. The gains you make are 100% tax-free and you earn a bonus of 2.5% interest p.a(1.25% semi-annually) from RBI.
With great returns comes great responsibilities
The catch is that you have to hold this bond for 8 years until its maturity. But fikkar not, you can choose 5 years early redemption or you can buy it via your broker and sell it on the stock exchange (capital tax may apply here*).
Gold ETF :
A Gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price. They are passive investment instruments that are based on gold prices and invest in gold bullion. In short, Gold ETFs are units representing physical gold which may be in paper or dematerialized form.
Unlike SGBs, these ETFs are backed by actual gold. As it is an exchange-traded commodity, SEBI regulates it. It's GST-free, no spread, and no lock-in period.
Cons: Capital gain is taxable. Your returns are affected because of the expense ratio. Since it is traded on an exchange, it has low Liquidity.
Gold mutual funds.
Gold funds are types of mutual funds that directly or indirectly invest in gold reserves. It is a convenient way to invest in an asset without having to purchase the commodity in its physical form. Gold mutual funds are open-ended investments, based on the units provided by the gold Exchange Traded Fund.
As it is managed by Mutual fund companies you have to pay a higher expense ratio. Moreover, they keep 2.5% of your invested money in cash form hence, your 100% capital is not used.
Let's have a look at overall returns from our contestants.
Here, Gold bullion gave you 9.7 % returns
SGB : 11.6%
Jewellery : 2.8%
Mutual fund : 9%
Digital Gold : 8.5%
Gold coin : 6.8%
SGB has outperformed with an 11.6% return whereas gold bullion gave 9.7% returns.
If you need returns and not actual gold, SGB would be the best option to invest. Thanks for staying with me till here. Do follow for more.
Thank you.
(Views are personal and can also be investment advice. No jeweler was harmed while writing this article)
