Amid weaker market sentiments and sluggish economy, gold has become one of the most preferred investment options. The price of gold has surged by over 45% and has breached Rs 50,000 mark. In terms of short term returns, gold has become the most valuable asset class for investors.
Investors spooked by low returns in the equity markets are flocking to invest in gold. But buying physical gold in the form of jewellery is expensive as you have to also pay making charges and GST. These extra charges are irrecoverable at the time of sale. Now the question arises here is apart from buying gold in a physical form, what are the other ways to invest in gold safely?
Here are a few financial instruments you can consider to invest in gold.
Also known as Gold Exchange Traded Funds, ETFs are issued by the government of India. Like any stock, gold ETF are also listed on exchanges and invest in physical gold. They offer good liquidity as you sell on exchange at any point in time.
Also, you are not require to pay for any making charges and GST. On top of that, you don't have to bother about its storage, purity, or insurance. These ETFs are traded at almost the market price of gold. That means, you can easily buy or sell without paying a premium.
However, if you keep gold ETFs for more than 3 years, you will become liable to pay a long terms capital gain tax of 20%.
Sovereign Gold Bond (SGB)
SGBs are issued by RBI as securities on behalf of the government of India. They are denominated in grams of gold. You can invest up to 4 kg in gold through SGBs in a financial year. SGB also offers a fixed interest rate of 2.5% per annum that is paid semi-annually. You can sell SGBs at the market price.
However, SGBs come with a 8 years tenor and you can opt for early redemption only after the 5th year. You can trade the bond on exchanges and hold it in demat form. However, low trade volume can delay your transaction.
SGBs are exempted from long term capital gains tax.
If you are planning to park your money for a long term in gold, then it is advisable to with SGBs as they are exempted from long term capital gains tax.