Sovereign Gold Bonds or Gold ETFs: What should you buy this Diwali?

This Diwali, if you are thinking of investing in goldSo remember that you don’t necessarily have to buy it in physical form. There are a few options to purchase. virtual gold which will not only allow you to profit from the gold, but will also save you from worrying about its security and storage.

On October 27, the price of 24-karat gold was $7,976 per gram and the 22 carat one has a price of $7,313 per gram (Indicative prices). For more details, you can check the latest gold prices. here.

Here we share some key details about sovereign gold bonds (SGB) and gold ETF so you can decide which financial instrument is worth your money.

Sovereign Gold Bonds (SGB)

Sovereign gold bonds (SGB) are government securities denominated in grams of gold. They are considered a substitute for physical gold. Investors are supposed to pay the issue price in cash and the bonds will be redeemed for cash at maturity. The Bonus is issued by Reserve Bank of India (RBI) on behalf of the Government of India.

The amount of gold the investor pays for is protected as he/she receives the current market price at the time of redemption/premature redemption. They are considered better than physical gold as storage risks and costs are eliminated.

Investors are assured of the market value of gold at maturity and periodic interest. SGB ​​is free from issues like charges and purity in case of gold in the form of jewellery.

The bonds are held on the books of the RBI or in demat form, eliminating the risk of loss of securities etc. One can buy these bonds from the issuing banks, SHCIL offices, designated post offices or agents. Each application must be accompanied by PAN number and an investor can purchase up to 4 kg of gold every year.

gold ETF

A gold ETF is a exchange traded fund (ETF) which aims to track the internal physical price of gold. They are passive investment instruments that are based on gold prices and invest in gold bars. Gold ETFs are units that represent physical gold, which can be paper or dematerialized.

One Gold ETF unit is equivalent to 1 gram of gold and is backed by very high purity physical gold. Gold ETFs combine the flexibility of stock investing and the simplicity of gold investing.

Gold ETFs are listed and traded on the National Stock Exchange of India (NSE) and the Bombay Stock Exchange Ltd. (BSE) like shares of any company. Buying gold ETFs means you are buying gold in electronic form. You can buy and sell gold ETFs just like you would stocks.

Frequently asked questions you need to know about virtual gold:

Who should invest in gold ETFs?

Gold ETFs are considered good for investors who want to profit from gold but are not yet interested in investing in physical form due to storage issues or concerns related to purity, and are looking to get tax benefits. Additionally, there is no premium or realization fee, so investors can save money if their investment is sizable.

How can you sell gold ETFs?

Gold ETFs can be sold on the stock exchange through the broker using a demat account and a trading account.

How can retail investors apply for SGB?

Retail investors can apply for each new SGB tranche through the direct retail portal.

Can you get the cash for bail at any time? Is premature rescue allowed?

Although the tenure of the bond is 8 years, encashment is allowed only after the fifth year from the date of issue on the coupon payment dates. The bond will be negotiable in NSD-OM. It can be transferred to any other eligible investor.

Are there any risks when investing in SGB?

There may be a risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold he has paid.