Gold has been a symbol of wealth since ancient times but in India it is a lot more than that. It is a part of life. It is one metal that Indians are attached to irrespective of age, gender, religion and region. Indians rarely buy gold with the idea of selling for a profit, we generally buy it for the ornamental purpose.

An average of 1.5 crore weddings per year estimated in India for the next 10 years, majority of Chinese buying high quality 24 karat gold, new fashion trends with gold are getting popular in US and Europe. The ever-increasing demand for gold is surely going to take the gold prices sky-high like never before.

Now if one decides to go ahead and invest in gold, then the next question is, in what form one should buy it. The common practice of buying a gold is in physical form but there is always a risk of robbery, quality issues, making expenses, storage obligations like bank lockers which are getting expensive year on year. The other forms of gold linked investments are SGB, Gold ETFs and Gold mutual funds which are held digitally and tradeable at far lower impact cost than physical gold.

Gold ETFs – For individual investors, Gold Exchange Traded funds (Gold ETFs) present a safer opportunity to invest in Gold. A Gold ETF is a mutual fund product issued in units representing 1 gm of Gold (purity usually of 995). The gold equivalent to the issued units is deposited with the authority (custodian). As the fund houses have the gold deposits against the units they issue, the price of gold ETFs are linked to price of physical gold, so when gold prices move up, the FTF appreciates and gold prices move down, the ETF loses value. Gold ETFs are listed on exchange therefore offer liquidity as they can be easily bought or sold. Since the Gold ETFs are held digitally there are no making charges and storage cost as well as no risk of purity and theft.

There is Tax advantages with Gold ETFs. When Gold ETFs are held for more than 3 years, long term capital gain tax of 20% with indexation benefit is applicable and if held for less than 3 years then short-term capital gain tax is applicable as per slab rate.

Gold Funds – Gold funds are of different nature by their investment logic. The Gold fund invests in the stocks of gold mining companies, distribution channels etc on the global level. The prices of such invested stocks would vary greatly depending on dynamics of demand and supply and other industry logistics and hence the return from gold funds is not just linked to gold prices but can outperform or even underperform gold prices. The taxation of gold fund is as applicable to Gold ETFs.

Sovereign Gold Bonds (SGBs) – The Sovereign Gold Bonds are issued by Reserve Bank of India on behalf of Government of India. As the name suggest they carry sovereign guarantee both on maturity and interest payable. Minimum investment in SGB is equivalent to 1 gm of Gold and max 4 kg of gold for individual investors. The SGBs can be applied online and once issued can be delivered in your demat account. Generally, a discount of Rs 50 per gram price of gold is offered on issue price. The interest at 2.5% p.a. is paid on the subscribed amount of SGB.

The tenure of each SGB series is 8 years. RBI offers redemption window every 6 months after completing 5 years of lock in period which can be used for premature redemptions. The redemption value is on the basis of price of 0.999 purity of gold at that time. The capital Gains applicable on the redemptions of SGB either on maturity or premature to an individual is exempt from tax.

The SGBs can be traded in the secondary market on exchanges. If SGBs are sold within 5 years then it will attract either long term or short-term capital gain tax depending on the holding period.

SGBs can be easily used as collateral for loans. The sovereign guarantee, ease of holding and disposal, tradability, fixed 2.5% p.a. interest and tax-free redemption are obvious advantages of investing through SGB.

Gold as an investment has given the compounded growth rate of 7.68% per annum over last 30 years. Gold always keeps pace with inflation hence it is used as ‘hedge against inflation’. Allocation of the gold to be maintain at 5% to 7% of the total portfolio. The maximum allocation of Gold shall not exceed 10%.

If you plan to stay invested in gold for a period of 5 years or longer sovereign gold bonds are the most suitable choice. In case you are looking to stay invested in Gold for the short term i.e., no more than 3 years, you can opt for Gold ETFs or Gold mutual funds, which have high liquidity and availability.

It is always advisable to consult a Qualified Financial Planner before investing to evaluate the pros and cons of the various gold investments.