INFORMATION
2023-12-26T10:33:17
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Krishan Singh Rauthan
2023-12-26T10:33:17 | 2 Mins to read
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Investing in precious metals like gold can be a smart way to diversify your investment portfolio and safeguard your wealth against economic uncertainties. While many people associate gold investment with owning physical gold bars or coins, there are alternative methods for investing in gold without the hassle of storing them at home, especially in a country like India.
A Gold ETF is like a special investment tool that follows the local gold price. It's a simple way to invest in gold because it automatically copies the changes in gold prices and buys gold bars. In simple terms, Gold ETFs are like certificates for real gold but in a convenient paper or digital form. Each unit of Gold ETF represents 1 gram of high-quality gold stored physically. These ETFs give you the ease of stock trading along with the straightforwardness of investing in gold. Gold ETFs act a lot like regular stocks of companies but instead represent gold. You can find them on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE), just like any other stock. These Gold ETFs are traded in the same way as company stocks on the market, allowing you to buy and sell them easily at current market prices. Buying Gold ETFs means you are purchasing gold in an electronic form. You can buy and sell gold ETFs just as you would trade in stocks. When you redeem Gold ETF, you don’t get physical gold, but receive the cash equivalent. Trading of gold ETFs takes place through a dematerialised account (Demat) and a broker, which makes it an extremely convenient way of electronically investing in gold.
Some of them are given below:
According to data available on the AMFI (Association of Mutual Funds in India) website, gold ETFs witnessed net inflows to the tune of around Rs 1660 crore during the July-September 2023 period
Gold ETFs are like virtual gold made from pure gold bars, about 99.5% pure. You can check their prices on the BSE/NSE website, and it's super easy to buy or sell them through a stockbroker whenever you want. Unlike gold jewellery, the cool thing about Gold ETFs is that you can buy and sell them at the same price across India.
To get Gold ETFs on BSE/NSE, you'll need a broker and accounts called a demat account and trading account. There's a small brokerage fee and some tiny fund management charges when you buy or sell Gold ETFs.
When you invest in an ETF tied to real gold, it's like using a tool to gain from gold prices, not to own the physical gold itself.
Sovereign Gold Bonds (SGBs) are like special government papers that represent grams of gold. They're a stand-in for having real gold. To get them, you pay the set price in cash, and when they mature, you get your money back in cash. The Reserve Bank issues these bonds for the Government of India.
When you buy SGBs, the amount of gold you pay for is secure. You get the current market price when you redeem it, whether it's at maturity or earlier. SGBs are a better option than having physical gold because you don't worry about storage risks and costs. You're guaranteed the gold's market value when it matures, and you may even get some interest. Unlike gold jewellery, you don't deal with making charges or purity concerns. The bonds are kept safely in RBI's records or a digital form, so there's no risk of losing physical papers.
Tax Treatment- The 2.5% interest you get is taxable based on your income tax rate, but they don't take any TDS from it. If an individual makes money when redeeming SGB, it's completely tax-free. And if you transfer SGB, you get indexation benefits for long-term gains. Plus, you don't have to deal with the 3% GST like you would with physical gold.
Tenor | 8 years |
Coupon Interest | 2.5% p.a. (semi-annual) |
Issuer | RBI |
Eligible Investors | Individuals, HUFs, Trusts, Charitable Institutions, etc. |
Maturity Value | Simple Average of 3 days gold rate, preceding maturity period |
Transferability | Yes |
Lock-in period | 8 years |
Early Redemption | After lock in period, on date of interest payment |
Interest Taxable | Yes, as per slab rate |
Capital Gains on redemption | Tax-exempt (after 5 years lock in period) |
Capital gains on transferred bonds | If long term capital gains, indexation benefit is provided |
Quantity permitted | Individual/HUFs 1gm-4kgs per year Trusts/Corporations 1gm-20kgs per year |
If the price of gold in the market goes down, there's a chance you might not make as much money. But here's the good part: you won't lose the actual amount of gold you paid for.
The 64th tranche of Sovereign Gold Bonds, which recently concluded and marked the first tranche for the 2023-24 financial year, achieved a record-breaking number of subscriptions compared to previous tranches. A total of 77.7 lakh units were subscribed, establishing a new milestone.
The Reserve Bank of India (RBI) just shared news about the Sovereign Gold Bond (SGB) Scheme Series III for the year 2023-2024. It kicks off on December 18 and wraps up on December 22. This move comes as gold prices have jumped by more than 10% in 2023, surprising everyone, especially considering the tough situation with high-interest rates.
In the recent June 2023 tranche, 7.77 tonnes of Sovereign Gold Bonds (SGBs) were bought. The total worth of this substantial quantity amounted to ₹4,604 crores. In the 2022 tranche, the quantity was 1/3rd compared to the 2023 volume, at 2.56 tonnes. This shows the growing popularity of SGBs as a medium to buy gold and also enjoy the LTCG tax benefit.
Think of Mutual Funds as a collection of shares brought together from lots of different people. Now, a Gold Fund is a special type of Mutual Fund or ETF (Exchange-Traded Fund) that mostly puts its money into either real gold or companies that produce gold.
This fund aims to make money from gold investments in an easy and straightforward manner.
Gold funds are great for people who want to keep their money safe from things like rising prices or political uncertainties. These funds come in different types, and I'll explain them briefly below.
Digital gold investment is like having a virtual version of real gold. It acts just like physical gold but lives in the digital world. Instead of being in your hands, it's kept safe in an online vault. The best part? It's supported by the purest form of gold.
When you get digital gold, the seller puts the same amount of real gold in a safe vault. You can start investing in digital gold with just Rs 1, but make sure to buy it from MMTC-PAMP, Safe Gold, Augmont Gold, or their agents and brokers.
Every digital platform selling digital gold has partnered with one of these companies. These platforms let you purchase, sell, or swap digital gold for real gold. To start investing in digital gold through these platforms, just finish your KYC (know your customer). Once they check your identity, you can begin investing in digital gold.
Conclusion
Investing in gold without the need to store physical metal at home is not only practical but also provides flexibility and security. Whether through Gold ETFs, Sovereign Gold Bonds, Gold Mutual Funds, or digital gold platforms, investors in India have several options to participate in the gold market. Consider your investment goals, risk tolerance, and preferences before choosing the method that best suits your needs.
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