The demand for gold strengthens during festivals such as Dussehra, Dhanteras and Diwali, where buying gold is considered auspicious. While traditionally people only bought gold jewelry and coins, investors have recently started buying gold in paper form, such as gold exchange traded funds (gold ETFs), bonds Sovereign Gold Bonds (SGBs) issued by the Reserve Bank of India and Gold Mutual Funds. (MF gold).
One of the best investment options is paper or digital gold. These investments generate good returns and are classified as capital assets for income tax purposes.
Here is a list of digital forms of gold that investors might consider this upcoming holiday season:
Sovereign Gold Bonds (SGB)
The bonds bear interest at the rate of 2.50 percent (fixed rate) per annum on the initial investment amount. Interest is credited semi-annually to the investor’s bank account, and the final interest is payable on maturity along with the principal.
Nish Bhatt, founder and CEO of Millwood Kane International, said investing in gold through SGB is a decent option as it provides liquidity, requires no storage costs and is easier to redeem.
On the other hand, SGBs have a lock-in period of 8 years and one can use the exit option only from the fifth, sixth and seventh year from the interest payment dates. Alternatively, if investors need to exit before 5 years, they will have to sell the SGBs on the stock exchange.
These are listed on stock exchanges, where one can get real-time updates of their price. ETFs have no back-end load, meaning investors can buy or sell the units at any time during market hours.
Gold Mutual Funds
Gold fund units can be redeemed by reselling them to the fund management organization based on the current net asset value.
Gold Fund of Funds (FOF)
These are funds that invest in a basket of mutual funds. They pass on the expense rate of individual funds as well as their own fees, making it slightly expensive.
Why should you invest in gold?
Here are the key parameters that make gold a decent investment:
|It is very safe to invest in gold as it is one of the oldest forms of investment with the power to beat inflation.
|There is no liquidity problem when it comes to investing in gold. It can be redeemed for cash whenever an investor wants.
|Look at the history of gold’s inflation rate. Regardless of the market situation, gold has always seen an increase over the years.
|Inversely related to equity
|Every time the stock market goes down, the price of gold goes up. Investing in gold improves the overall portfolio of the investor