You can now hold gold in either its physical form or on paper — through gold bonds or through mutual funds that trade in gold. What should you do? The answer depends on what you are looking for. If you want liquidity, and are planning to take a loan against your stock of gold, then physical gold is your best bet.

But, remember, you will need to pay a capital gains tax when you sell physical gold. But if you are looking at gold as a long-term investment, then a gold bond is what you might want to go for. Not only are you spared capital gains tax when you redeem these, you also earn a small interest.

Indians love and cherish gold. Irrespective of religion or caste, it is a must for every household to possess some gold. There is no one who would not like to wear gold in the form of ornaments. That is why there is so much demand for gold, in our country.

There has never been a situation where the demand for gold has waned. Gold is preferred not just in the form of ornaments, but also as an investment. Indian Government has introduced Sarvabhauma Gold Bonds specially for such investors.

Some 300 tonnes of gold is being sold in the country, annually. All this is being imported from abroad. The Centre aims to reduce these imports. It has introduced this plan, to divert the investments on solid gold, to that of gold bonds. Reserve Bank of India (RBI) is releasing the scheme, on behalf of the Centre. These bonds are authenticated by Indian Government.

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Types of Gold Investment
A look at the different options that are now available.

  • Physical gold: Traditional method of owning jewellery, coins or bars. They can be sold to a jeweller or directly to other buyers.
  • Gold ETF: Owning units of a mutual fund scheme that invests in gold. Gold ETF (exchange traded funds) units are held in demat form and traded on the stock market.
  • Sovereign gold bonds (SGBs): Bonds issued by RBI on behalf of the government and traded on the stock exchange. Gold bonds have a fixed tenure of 8 years with an exit option to redeem bonds from the end of the fifth year.

This chance is only for Indians living here, and not for Non-Resident Indians (NRIs). A person, can buy a minimum of one gram of gold and a maximum of 500 gm of gold, in a year. Bonds are available as demat accounts or certified on paper.

Gold bonds are available annually, only on certain days. Up till now, government has completed issuing eight rounds of gold bonds. It is making these bonds available, not at all times, but a few times in a year.

The bonds are priced as per the market rate of gold, at the time of issue of the bonds. Gold bonds can be bought from commercial banks, Non-Banking Financial Corporation (NBFC) agencies and post offices. These bonds are available even with stock brokers. They are available online with banks and financial agencies. The term of bonds is eight years. At the end of five, six or seven years, there is a chance of withdrawing the investments.

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These bonds are traded in stock exchanges. They are sold and bought here. Because they are in demat form, if you need money urgently, you can sell them to others, by just transferring the bonds to their accounts. The bonds remain in demat form.

These bonds can be used as guarantee against loans. So you can take loans against them in an emergency. The rules set for gold loans, apply to loans against gold bonds. For those investing in gold, bonds are better than physical gold, experts suggest. The returns earned over the capital investments in these bonds, are not taxed.

If you buy gold in the form of ornaments or biscuits, you need to protect them carefully. There is no safety at home. You need to rent a bank locker. But if you buy bonds, these kind of inconveniences can be avoided.

If gold prices increase, after buying the bonds, the difference in amount is paid. Also, an interest of 2.7 per cent is paid once in six months, over the amount invested in these bonds. Bonds can be bought not just by one individual, but by several people, jointly.

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These bonds can be given as a gift to others. It can also be transferred to others. Many modes of payment like cash, cheques, DDs or electronic exchange, are available to own these bonds. However, for cash payment, the amount to be invested is limited to Rs. 20,000. They can be taken in the name of children, under the supervision of a guardian or parents.

KYC documents
Know Your Customer (KYC) details are a must for taking gold bonds. Aadhar Card and Pan Card are enough to show as proof.

Risk Factor
Centre certifies the investments as well as interests in these bonds. But gold rates depend on the market situation. If gold rates fall internationally, the value of bonds declines. Each investor should buy at least two gm worth of gold bonds.

Return On Investment: While physical gold and gold ETF units attract a long term capital gains (LTCG) tax, SGBs are exempted from it.

Where Gold Bonds Score: You only pay tax on the interest, so the final return is substantially higher than physical gold or gold ETF. Further, in addition to the tax hit, owners of physical gold must also pay the cost of secure storage, like a bank vault. Gold ETF investors must also pay fees, albeit low, to brokerage houses. Gold bonds, however, do not come with additional costs. #KhabarLive #hydnews

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A senior journalist having 25 years of experience in national and international publications and media houses across the globe in various positions. A multi-lingual personality with desk multi-tasking skills. He belongs to Hyderabad in India. Ahssanuddin's work is driven by his desire to create clarity, connection, and a shared sense of purpose through the power of the written word. His background as an writer informs his approach to writing. Years of analyzing text and building news means that adapting to a reporting voice, tone, and unique needs comes as second nature.