Gold has remained a preferred investment class for Indians for generations, not only due to financial reasons but for cultural factors as well. India is the second-largest consumer of the precious metal and considers it auspicious asset.
However trends are changing. While accumulating physical gold is a sign of prosperity, many feel safe in keeping as an asset class in demat or digital format.
There are different ways one can invest in gold — buying the yellow metal in physical form, Gold ETFs and now, Sovereign Gold Bonds (SGBs). Issued by the Reserve Bank of India (RBI), SGBs have emerged as a good substitute for holding physical gold. The government issues such bonds in tranches and investors buy them through banks, post offices and markets.
When it comes to a choice between investing in physical gold and gold bonds, gold bonds have some advantages over physical gold. Investors earn 2.5 per cent interest per annum on the principal value of investment in addition to the price appreciation of gold.
Consider this, if you make a purchase bonds worth ₹50,000, you will earn 2.5 per cent interest every year for eight years’ maturity with the market value too. Early redemption is allowed after the fifth year. It can also be traded at stock exchanges.
The risk of loss of scrip and costs of storage are also eliminated as the bonds are held in demat form. There will always be a copy of your investment details with the RBI.
Archit Gupta, Founder and CEO, ClearTax, says SGBs are an excellent alternative to physical gold for the additional 2.5 per cent returns.
“At the start of August 2017, the price per one gram of gold was ₹2,619.25 per gram, and it almost doubled (to ₹4,769.63) at the start of August 2020. Now, if you had invested in physical gold, then your returns are the difference between the buying and selling prices. There may be certain losses on account of making charges etc. Moreover, getting cash for gold may be difficult too. On the other hand, if you had invested in sovereign gold bonds, you would get returns in the form of capital appreciation and interest income at the rate of 2.5 per cent. One also has to consider the effort involved in storing physical assets and keeping them safe,” he explains.
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