Sovereign Gold Bond Investment in India has taken a new craze after a huge jump in gold price in past 2 years. In previous article we discussed about Best Mutual funds in India ( Link). In today’s article we are going to talk about various options available. If you have any plans to invest in Gold.
We will discuss this in a detailed manner and explain you the cost involved in each investment option. Also will get to a conclusion on which Digital Gold investment in India will provide best return over a period of time.
Let’s get into it and decode the topic. Don’t miss the end were I have showcased the entire article in one single tabular column and ranked based on the best return from best to worst.
All Digital Gold investment in India are linked to gold price so only cost difference makes it different from each other.
Physical Gold or Jewellery:
Let’s make this clear Jewellery can never be considered as an investment because firstly it is bought for the consumption purpose. Moreover making charges and wastage charge involved are high and Purity of gold is a question mark then comes the storage problem. So we will completely avoid jewellery and get into other forms of Physical gold.
So Others forms be Either Coins or Bullion’s (Gold Biscuits). When we buy gold in the mentioned form we still have the storage problem and 3% GST cost attached to it. Which eats the final return. Physical Golds are highly Liquid in nature that’s the benefit attached with it. Minimum Investment of 0.5 to 1 Gm of gold is required as we cannot get below such weight.
Gold ETF’s
In order to invest in Gold ETF we need a Demat Account with Zerodha or Upstox. As management is involved in managing these funds a certain percentage of expense ratio is involved which varies between 0.5% to 1% and very negligible amount of government taxes are charged.
Minimum investment size is 1 gm in order to take delivery we must have atleast 1kg of gold. So anything invested below 1 kg we cannot get it delivered to us.
No loan can be taken against Gold ETF’s. As this is invested via Demat account it takes around 2 to 3 – 4 days to get the amount credited in our bank account.
Source : National Stock Exchange
Gold Mutual funds:
This investment is almost similar to Gold ETFs so will explain you what extra things are attached to it. SIP is possible in this case and Minimum investment starts from Rs.500/- only. Inorder to invest in this instrument we need certain apps which helps us to invest in funds directly. Direct plans helps in reducing the cost too. Groww, Coin , Kuvera etc offer us to invest in Gold mutual funds.
Exit load is an extra cost involved if we exit the investment within a year and Exit load can be around 1% or 2% based on fund house. As Gold mutual funds basically also invest in Gold ETFs there is double cost of expense ratio. One is Gold ETF has 0.5% to 1% of expense ratio and Two Gold Mutual fund has a expense ratio of 0.5% to 1% so there is expense ratio paid twice for same year. Please comment down if I am right on expense ratio part for Gold Mutual fund.
Obviously we cannot get delivery of gold if we invest in this class.
Digital Gold :
A new Investment option into the market which is gaining popularity day by day. This is very interesting part of this article and lets dive deep into it.
Minimum we can buy gold for Rs.1/- also through various apps like Paytm, Gpay, Phonepe etc. SIP is possible and we can get delivery of gold whenever we want it. We can either encash it or take delivery of the investment. We cannot get loan against this Digital Gold investment.
Who issues Digital Gold in India ?
Basically whatever gold purchased by us through Digital Gold there are only 3 companies in India which hold storage on behalf of us.
- MMTA-PAMP
- SAFEGOLD
- AUGMONT
So these are the 3 companies which hold storage no matter from which app we buy Digital Gold.
Here 3% GST is charged and very negligible Storage cost is involved in certain cases. Maximum storage period varied between 5 to 7 years after that period either we need to sell on the market price or get delivery of the investment. If delivery is taken certain minimal making charges are involved.
So we have discussed all the Digital Gold Investment options except Sovereign Gold Bonds my favourite and will show you how this is best option to invest.
Sovereign Gold Bond:
SGB are government securities priced against Gold price per gram. It act as a substitute of physical gold. This can be bought through Banks , Post office or Demat form though SEBI registered stock broker and SHCIL (Stock holding Corporations) During the maturity period amount is deposited into registered bank account. Gold Market price during maturity is considered on redemption.
One can apply to such bonds when government issues during a period of year into various Tranche or you can also buy from secondary market through your demat Account.
Advantages of Sovereign Gold Bond
- Price of Sovereign gold bond is calculated through a simple average of last 3 days of 999 gold purity set by Indian Bullion and Jewellers association limited (IBJA)
- We get an interest rate of 2.5% P.A (Fixed) on the invested amount. Interest are credited into linked bank account every 6 month.
- Maturity period is 8 years and amount will be deposited into the bank account based on prevailing gold price fixed by IBJA. We cannot redeem it in physical form.
- Redemption of these bonds is possible after 5 years but on the date of interest payments.
- If we hold these bonds in demat form then we can redeem even before 5 years.
- NRI are not allowed to purchase Sovereign Gold Bonds.
- We can avail loan option against Sovereign gold bonds. No other Digital gold investment provides this facility.
- No Capital Gain tax at the time of redemption of Sovereign gold bond. Only if you redeem during maturity.
- Sovereign Gold bonds is garanteed by Goverenment , so There is almost no risk of default.
So now that we have explained all the Digital Gold investment in India. Lets get to the calculation part to understand which is the best investment options. Lets get a historical gold price so that we can understand the return on gold over a period of time. currently Gold price is nearly 50K for 10gms
RETURNS are considered as 8% per year.
Conclusion
Based on calculation we have a clear winner with 31.5% from Sovereign Gold Bond. All the above said points and explanation on each category of Gold Investments are my opinion based on my experience. Please do your own research before making any decision. All articles in Finotox are for educational purpose only.
If you like this article share it among your friends. see you all in next such informative and educational blog.
Byeee Byeee…..
A new Investment option into the market which is gaining popularity day by day. Minimum we can buy gold for Rs.1/- also through various apps like Paytm, Gpay, Phonepe etc. SIP is possible and we can get delivery of gold whenever we want it. We can either encash it or take delivery of the investment. We cannot get loan against this Digital Gold investment.
Basically whatever gold purchased by us through Digital Gold there are only 3 companies in India which hold storage on behalf of us.
MMTA-PAMP
SAFEGOLD
AUGMONT
SGB are government securities priced against Gold price per gram. It act as a substitute of physical gold. This can be bought through Banks , Post office or Demat form though SEBI registered stock broker and SHCIL (Stock holding Corporations) During the maturity period amount is deposited into registered bank account. Gold Market price during maturity is considered on redemption.
One can apply to such bonds when government issues during a period of year into various Tranche or you can also buy from secondary market through your demat Account.
In order to invest in Gold ETF we need a Demat Account with Zerodha or Upstox. As management is involved in managing these funds a certain percentage of expense ratio is involved which varies between 0.5% to 1% and very negligible amount of government taxes are charged.
Minimum investment size is 1 gm in order to take delivery we must have atleast 1kg of gold. So anything invested below 1 kg we cannot get it delivered to us.
No loan can be taken against Gold ETF’s. As this is invested via Demat account it takes around 2 to 3 – 4 days to get the amount credited in our bank account.
a) Price of Sovereign gold bond is calculated through a simple average of last 3 days of 999 gold purity set by Indian Bullion and Jewellers association limited (IBJA)
b) We get an interest rate of 2.5% P.A (Fixed) on the invested amount. Interest are credited into linked bank account every 6 month.
c) Maturity period is 8 years and amount will be deposited into the bank account based on prevailing gold price fixed by IBJA.
d) We cannot redeem it in physical form.Redemption of these bonds is possible after 5 years but on the date of interest payments.
e) If we hold these bonds in demat form then we can redeem even before 5 years.
Let’s make this clear Jewellery can never be considered as an investment because firstly it is bought for the consumption purpose. Moreover making charges and wastage charge involved are high and Purity of gold is a question mark then comes the storage problem. So we will completely avoid jewellery and get into other forms of Physical gold.
So Others forms be Either Coins or Bullion’s (Gold Biscuits). When we buy gold in the mentioned form we still have the storage problem and 3% GST cost attached to it. Which eats the final return. Physical Golds are highly Liquid in nature that’s the benefit attached with it. Minimum Investment of 0.5 to 1 Gm of gold is required as we cannot get below such weight.
SGB can be bought only when RBI issues such bond. It can be purchased through DEMAT form via you broker (Zerodha / Upstox). Another way to buy Such Sovereign Gold Bond is through Post office.
2.5% per annum on invested amount.