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Which-one-is-best-for-Investment-whether-Gold-ETFs-or-SGBs

 

Which one is best for Investment whether Gold ETFs or SGBs

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See the related post : Sovereign Gold Bonds Scheme
 
Introduction-

Gold Exchange traded Funds (ETF) or Sovereign gold bond (SGB), which one is best for Investment, the comparision is as under-

 
“Every time you borrow money, you’re robbing your future self.”
 
Gold Exchange-traded Funds (ETFs) -
Gold ETF is traded on the stock exchange (NSE & BSE) where we can buy or sell gold in real time during the trading session. All investment in ETF can be made through demat account .There is no risk factor for theft or burglary because all gold ETF investment will safely get deposited in your demat account.

You can buy 1 gram of gold to initiate the investment. It contains lower charges for buying & selling as compared to physical gold sale/purchase. Its liquidity is high and easy to transact in comparison to physical gold. When you sell these units, you get cash and not physical gold. The price on which it is bought is probably the closest to the actual gold prices. There is no restriction to hold these funds for a minimum period.

Long term capital gain will be taxed @ 20% with indexation benefit after 3 years of holding otherwise charged as Short term capital gain at normal slab rate.

 

Sovereign gold bonds (SGBs) -
SGB is issued by Reserve Bank of India on the behalf of the Government of India. This is in the form of bonds not in physical gold. The value of bonds is denominated in multiples of gold grams. Investment in physical gold always remain fear of theft and incur expenses for their wear/tear for example to keep in locker, you have to pay locker rent annually. Sovereign gold bonds are safe because they are in the form of bonds not in the form of physical gold.

Any Indian Resident- for example an Individual, HUF, Trust, charitable institutions or universities can invest in sovereign gold bonds, even any person can also invest in the name of minor also. In sovereign gold bonds interest is received @ 2.50% per annum on half yearly basis on the nominal value of bonds. Pan number of the applicant is mandatory as per instruction of the Reserve Bank of India.

No capital gain tax will be charged if you hold it until maturity or say redeem it after its maturity, otherwise Long term capital gain will be taxed @ 20% with indexation benefit after 3 years of holding otherwise charged as Short term capital gain at normal slab rate. Interest received thereon is taxable.

 

 
Which One is better for Investment -
Gold Exchange-traded Funds (ETFs) and Sovereign gold bonds (SGBs), both are best investment options to invest your money. Out of these which one is better, is totally depends upon the following factors like liquidity, returns, period of Investment & Taxation etc.
  1. Liquidity- If you are have sufficient liquidity of funds then go to sovereign gold bonds, which is best as compared to Gold exchanges traded funds or if you have no liquidity of funds then go to ETFs.
  2. Returns- SGBs have higher return as compared to Gold ETFs. SGBs have an additional income of interest which is 2.50% per annum on half yearly basis on the nominal value of bonds.
  3. Period of Investment- If you want to invest your funds for long term then go for SGBs otherwise to invest in ETFs. SGBs have maturity period of 8 years or you can’t redeem it before completion of 5 years while ETFs have no lock in period.
  4. Taxation- Under SGBs, no capital gain tax will be charged if you hold it until maturity or say redeem it after its maturity, otherwise Long term capital gain will be taxed @ 20% with indexation benefit after 3 years of holding otherwise charged as Short term capital gain at normal slab rate. Interest received thereon is taxable. While under ETFs, Long term capital gain will be taxed @ 20% with indexation benefit after 3 years of holding otherwise charged as Short term capital gain at normal slab rate.
 



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