Today the first tranche of subscriptions for this financial year’sSovereign Gold Bonds (SGB) begins.
Each bond tracks the price of 1 gram of gold and is set atprice of Rs 4,777 per bond. Further, online application and payment gets adiscount of Rs 50 per bond or slightly more than 1%.
The icing on the cake for the investors is that interest atthe rate of 2.5% paid half-yearly is also guaranteed.
At the time of maturity, the amount equivalent to the valueof the gold at the then market price will be given.
Thus, it tracks physical gold, has value same as physicalgold (plus interest) but without any access to physical gold.
Now this lack of any access to physical gold can be advantageousor disadvantageous depending upon individual requirements and tastes.
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Elaborating on SGB, the bond has tenure of eight years andan exit option after five years. The exit will be on each interest paymentdate.
Thus SGB lose in liquidity, but make up for it in the extrainterest income it provides and in the absence of any management charges.
SGBs are not the only way to invest in goldelectronically. ETF (Exchange Traded Funds) on the stock markets and GoldMutual Funds are other investment vehicles that track the price of physicalgold.
And let’s not forget physical gold.
Let us compare all these investment vehicles which matchtheir value to the price of physical gold.
ETFs are traded on the Indian stock markets like any otherstock or share and thus theoretically are liquid as long as there is anopposite order as to the one you want to execute.
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To help ensure this, the investor is advised to invest in onlythose ETFs which have high turnover.
The same can be evaluated on National Stock Exchange (NSE) byclicking “EXCHANGE TRADED FUNDS” at Home-> Market Data -> Market Watch -> Equity & SME Market ->Equity/Stock. On the consequent page, sort descending by VALUE and then youcan shortlist those which have UNDERLYING ASSET as “Gold”. However, there maybe a nominal management charges.
Now, Gold Mutual Funds are technically similar to ETF inthat they too track the price of physical gold. With these in comparison to ETFs,an investor is dealing directly with the mutual fund house. These too aregenerally liquid (make sure your selected scheme is open-ended), but there arespecific cut-off timings to submit your deposit and redemption requests.
Now, a word to the wise – Online, digital gold, convenientas it may be and made tempting by discounts, is under the direct control of thegovernments and the tax department. If due to any reasons, the authorities wantto freeze your assets, it won’t take more than one click on their end to block allyour assets.
However, physical gold – packing immense value in such atiny object – cannot be confiscated from you so easily.
Further, physical gold can be used in an emergency situationat any time of the day or night; physical gold can be life-saving in times ofwars or other such events.
But, human nature being as it is, no one can be trusted witha valuable asset like physical gold which is a bearer asset. To illustrate, anywoman or man who has whatever physical gold in their physical possession canclaim ownership of the same.
Gold, unlike fiat currencies, has been used a store of valuefor more than 5,000 years. Even though, gold is a commodity and does not earnrevenue on its own (like companies represented by stock ownership do), stillsome investment in this precious metal – whether in the form of jewellery, ETFs,mutual funds, or SGBs is something that every individual should consider.