Gold is a valuable asset that not only adds value to a portfolio but also helps diversify it. According to financial experts, gold should account for at least 10% to 20% of an investment portfolio’s assets. The fundamental reason for this is that gold serves as excellent inflation and currency risk hedge. Purchase Sovereign Gold Bonds, Gold ETFs, or even any form of physical gold to invest in gold. This blog delves into the differences between actual gold and sovereign gold bonds, such that investors can make an informed decision.
What is a Sovereign Gold Bond?
Sovereign gold bonds are government securities issued on behalf of the government by the Reserve Bank of India (RBI). Each unit is one gram of gold, and they are denominated in gold. The interest rate on these debt securities is fixed. They can also be sold in the secondary market to profit from capital gains.
Benefits of investing in Sovereign Gold Bond
1. Storage Cost:
Apart from market risk, there are no additional risks associated with keeping real gold in SGBs. On the bonds, there are no hefty creating or designing expenses or TDS. Furthermore, no one can steal or alter the ownership.
2. Assured Interest:
Unlike actual gold, SGB investors not only do not have to pay any money to safeguard the safety of their gold, but they also receive a guaranteed interest rate of 2.5 percent per year, paid half-yearly.
3. Purity:
While quality is still a concern when purchasing real gold, the SGB guarantees 99.9% purity of gold.
4. Capital Gain Tax:
Unlike physical gold, where investors must pay capital gains tax when reselling gold or gold jewelry, SGB investors do not have to pay any tax in the event of a gain on maturity.
5. Goods and Services Tax (GST):
There is no GST in the case of investments in SGB unlike investments in jewelry.
What is physical gold investment?
When Gold is in tangible form, it is the most known investment. It is available in the form of jewelry, coins, biscuits, and bars.
Gold can be purchased straight from a jeweler. As a result, no broker or middleman is engaged, and the transaction is devoid of counterparty risk. Gold biscuits are sold in increments of 10 grams, thus the minimum investment in actual gold is significantly greater. Tangible evidence of all gold acquisitions helps during the payment of income tax.
Benefits of Investing in Physical Gold
1. Take physical possessions:
Investors can keep the investment in a tangible form. They might take the form of ornaments, bars, or coins.
2. Emergency:
Gold has proven to be one of the only assets that stand untouched and gets through the market and economic collapses, protecting the investment. Gold ETFs (exchange-traded funds) will not provide the same protection as actual gold in the case of unanticipated political and societal crises. Physical gold provides ‘financial security that is unlikely to be compromised.
3. Complete control over wealth:
Physical gold investments assist investors in determining when to purchase and sell. Investors bear the responsibility for the asset and can owe their asset management.
The major differences between SGB and Physical Gold are elucidated in the table below:
Conclusion:
- The Tranche-60 Sovereign Gold Bond (SGB) has been issued for the Fiscal Year (FY) 2022-23 at an issue price of Rs 5,091 per gram for offline investors and Rs 5,041 for online investors.
- With gold prices now lingering around Rs 55,000 per 10 gram (or Rs 5,500 per gram), SGB investors would not only gain roughly Rs 7,000 per 10 gram (or Rs 700 per gram) but would also enjoy numerous additional advantages over actual gold investments.
- Apart from the above benefits, SGB can also be used as collateral for taking secured loans and can be traded in exchanges as well.
- The Sovereign Gold Bond is an effective way of taking exposure to gold. There is no storage cost, as the holding format is digital, plus the investor stands to gain a 2.5 percent per annum interest.
- SGB is a favored route for the government to convert all gold investments into a digital model, it will help keep the deficit under control and provide support to the currency.
Apart from providing a hedge against uncertainty at the time of the Covid-19 pandemic, the prospect of gold looks bright also.
