It is that time of the year when buying gold is considered auspicious. It is the time when huge crowds throng jewellery outlets and sales touch the year's peak. However, buying physical gold is not hassle-free as there are many concerns like the purity of gold and high making charges. Digital gold has therefore become popular, as it is not only easy to buy but also easy to store.
Given the benefits of digital gold, the next tranche of Sovereign Gold Bonds (SGBs) 2021-22 will be open for five days from October 25. It will be sold in four tranches till March 2022. SGBs are securities denominated in grams of gold, which are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. Though there is a sovereign guarantee, there is no physical backing of gold in SGBs.
Here is a lowdown on the features of SGBs and other types of digital gold:
Interest rate: What sets SGB apart from other digital assets is the fact that it also offers an interest rate of 2.50 per cent per annum. To give you an idea -- if the gold price is Rs 50,000 per 10 grams, you will also receive interest of around Rs 1,250 every year. At the time of maturity, the gold value at current market prices is returned along with the interest income.
The important point to note here it that gold prices are driven by the rule of demand and supply and hence can decline as well. However, even if the prices decrease, the units of gold remain the same.
How much one can buy?: You can buy a maximum of 4 kgs per annum and a minimum of 1 gram of gold through these bonds.
Tenure: The bonds mature in eight years. However, it gives an exit option in the fifth, sixth and seventh years on the interest payment dates.
Issue price: The issue price is decided based on the average closing price for the last three working days of the week preceding the subscription period. To decide rates, price of 999 purity gold is considered.
Online buying: If you buy online then prices get reduced by Rs 50 per gram for those who subscribe online and make the payment through digital mode.
Collateral: It can also be used as collateral for a loan.
Taxation: Importantly, there is no tax on redemption of SGBs after the completion of eight years. However, if you sell it before 36 months, short term capital gain (STCG) tax is levied as per your income tax slab. If sold after 36 months, the profit is taxable as long term capital gains at 20 per cent post indexation.
If you have a demat account, then you can invest in ETFs just the way you buy and sell shares. It also lends them high liquidity as they are listed on the stock exchanges.
Taxability: If sold after three years, ETFs are considered as long term capital gain and taxed at 20 per cent post indexation. If sold before three years, then it is considered as short term capital gain and taxed according to your income tax slab.
Gold funds invest in gold ETFs and are sold by mutual funds. Here, just like any other mutual fund scheme, NAVs are declared daily at the end of trading hours. These funds are suitable for those who don't have a demat account but still want to invest in digital gold. However, they are costlier than investing in gold ETFs as you have to bear the cost of both gold ETFs and gold funds. The taxation is similar to gold ETFs.
Experts advise investors to invest at least 15 per cent of money in gold. As gold prices are inversely related to equity, this makes it a good hedge against the uncertainties of the equity market.
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