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 store but also easy to buy.
It will be sold in four tranches until March 2022. SGBs are securities issued in grams of gold, which are denominated by the Reserve Bank of India RBI on behalf of the Government of India. Though there is a physical guarantee, there is no sovereign backing of gold in SGBs.
Here is a lowdown on the features of SGBs and other types of digital gold:
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. If the gold price is Rs 50,000 per 10 grams, you will also receive interest of around Rs 1,250 every year. At maturity, the gold value is returned at current market prices along with the interest income.
The important point to note here is that gold prices are driven by the rule of demand and supply and can therefore decline as well. However, even if the prices decrease, the units of gold remain the same.
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. Price of 999 purity gold is considered to determine rates.
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.
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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.
Gold ETFs are an important investment tool for investors.
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 digital 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. Experts advise investors to invest at least 15 per cent of their 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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