Festivals, Buy Gold via Sovereign Bonds,
ETFs & Mutual Funds..!
By Mr. Adhil Shetty, BankBazaar.com
Gold is one of the most loved investments in India. We
buy it as jewellery, coins & biscuits.
The metal is popular because it offers one of the best
hedges against inflation, and is therefore a must-have, especially during times
of economic uncertainty.
Diwali is around the corner, and you may be considering
investing in gold.
Here are some smart alternatives in case you want to reap
the benefits of having gold in your portfolio but don’t want the burden of
owning it in its physical form.
1. Sovereign Gold Bond (SGB)
When you invest in traditional gold instruments, you
experience only one type of value appreciation, which is through capital gains.
Investors often go through periods where gold prices remain subdued and there
are no returns in the short and medium term. In fact, market volatility may
even cause short-term losses.
The Reserve Bank of India (RBI) recently launched SGB
scheme which allows capital appreciation and also the added bonus of interest
returns on your investment. The interest on SGB is currently fixed at 2.75% per
annum.
You can invest in this scheme through designated banks,
post offices, NBFCs or through a stock exchange. You have to buy at least one
gram. The upper limit is 500 grams per year for an individual.
There is also a lock-in period of three years to claim
the benefit of long term capital gain tax (LTCG). Premature withdrawals are
allowed after five years, but if you redeem the SGB after the full tenure of
eight years, the transaction is completely exempted from tax.
2. Gold through mutual fund..!
There are various mutual fund companies that allow
investments in schemes having a gold ETF as an underlying asset. The minimum
investment required in gold mutual fund schemes is Rs. 1,000.
To claim LTCG tax
benefit you need to hold the investment for three years. There is no
restriction on redemption, as you are free to liquidate the investment anytime.
LTCG tax is applicable at 20% with indexation whereas, if liquidated before three
years, the gain is taxed at your slab rate.
You do not need to have a demat
account to hold a gold fund.
3. Gold exchange traded fund (Gold ETFs)
ETFs are another popular way of investing in gold. You
can buy and sell ETFs through stock exchange and hold the units in your demat
account.
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| Adhil Shetty, BankBazaar.com |
The minimum investment required is one gram gold. You need to pay
brokerage, and there is an annual demat account charge as well. Tax implication
is similar to gold funds.
You can buy ETFs on any trading day, just as you buy
stocks. When you go for options such as ETFs, SGB and gold funds, you get
safety of possession sans concerns about metal purity.
About the author
The writer Mr. Adhil Shetty is CEO, BankBazaar.com
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