Investors invariably seek to
diversify their investment portfolios to mitigate risks, particularly during
times of market volatility. Among the array of options available, gold is often
regarded as the premier safe-haven investment.
During periods of market turmoil, the
safe-haven qualities of gold are accentuated. With its absence of counterparty
or default risks, gold is universally acknowledged and utilized as a refuge for
preserving wealth during financial crises. Consequently, investors frequently
allocate a portion of their portfolios to gold as a means of diversification.
Numerous investment avenues exist for
those desiring exposure to gold without physical ownership. Herein, we shall
explore several non-physical modes of investing in gold.
Sovereign Gold Bonds (SGBs) represent
a secure avenue for purchasing digital gold. Issued by the RBI on behalf of the
Government of India, these bonds provide investors with an assured bi-annually
interest at 2.50% per annum. With a tenor of eight years, investors have the
option to exit from the fifth year onwards.
Gold Exchange-Traded Funds (ETFs)
are investment instruments that mirror the performance of gold and are traded
similarly to individual stocks on stock exchanges.
Gold mutual funds,
on the other hand, operate as open-ended Fund of Funds (FoF) structures. They
invest in gold ETFs, offering investors the added convenience of accessing gold
investments through a mutual fund platform, albeit at an additional fee.
When considering cost
and taxation, SGBs shine for lump sum investments due to fixed interest rates
and tax benefits. They offer a clear advantage with minimal costs and tax
efficiency. On the other hand, for systematic investments, gold funds or ETFs
are preferred for their flexibility and ease of investment. They provide a
convenient route for regular investments in gold, making them the top choice
for systematic investment strategies.
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SGBs
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Gold
ETFs
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Gold
MFs
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Issued By
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RBI
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AMC
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AMC
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Return
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2.5% fixed annual interest +
capital appreciation/depreciation based on gold prices at selling/maturity
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Capital
appreciation/depreciation based on gold prices at selling – Expense
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Capital
appreciation/depreciation based on gold prices at selling – Expense
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Liquidity
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Low to moderate
due to trading on exchanges. Can be sold after 5 years
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Moderate, subject to ETF volume
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High, based on NAVs
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Min Investment
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Min 1 gm
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Min 0.01 gm
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Rs 500
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Cost
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Expense Ratio
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No
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Yes
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Yes
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Brokerage
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Yes
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Yes
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No
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Exit Load
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No
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No
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Yes
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Taxation
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Tax
on Interest
Income
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As per Investor’s income
tax
slab
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NA
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NA
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Capital Gain/Loss Tax
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Gold
held for less than 3 years falls into the short-term category, while those
held for longer are classified as long-term assets.
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STCG
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As per Investor’s income
Tax slab
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As per Investor’s income
Tax slab
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As per Investor’s income
tax slab
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LTCG
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In case
of more than 5 years
no LTCG else 20% + cess
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20% + cess
With Indexation
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20% + cess
With Indexation
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Indexation
benefit
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Yes in case of 3-5 years
holding
period
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Yes, in case
of more than
3-
year holding period
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Yes, in case of more than
3-year
holding period
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Other Features
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SIP
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No
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No
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Yes
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Physical Delivery
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Yes ( Min 4
Kg)
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Yes (Min 1 Kg)
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No
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Loan
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Yes
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No
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No
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