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Investment Options In Gold

Parameters Sovereign Gold Bond Gold ETF Gold Mutual Funds Physical Gold
Issuer RBI on behalf of GOI Mutual Funds / Other entities Mutual Funds N/A
Who can invest Individuals, HUF, Charitable Trusts, Universities Anyone Anyone Anyone
Form of Holding Physical Holding Certificates/ D’mat. D’mat. Electronic Form (Statement of Account) Physical
Min Investment 1 gram 1 gram Rs.1,000/- (depends upon scheme to scheme) Any Amount
Max Investment 20kg for institutions & 4kg for all other investors per year Any Amount Any Amount Any Amount
Interest rate 2.50% p.a credited semiannually (Taxable) N/A N/A N/A
Redemption Value Average of closing price of gold of 999 purity of previous 3 business days from the date of Gold ETFs are represented by 99.5% pure physical gold bars. As per underlying value of holding (generally Gold ETF) Prevaling price of gold
Tenure Lock-in for 8 years, early redemption from 5th year No fixed tenure No fixed tenure No fixed tenure
Liquidity Traded on stock exchanges (Only if held in D’mat) Traded on stock exchanges. Can be sold back to fund anytime. Fairly liquid.
Exit Load N/A Nil Applicable between 1-2% for upto 1-3 years. Nil
Tax No TDS. Interest is fully taxable. No Capital Gains tax if held till maturity. Capital Gains Tax applicable if Capital Gains Tax is applicable Treated as Debt Mutual fund. Capital Gains Tax charged as applicable Capital Gains Tax is applicable
Impurity Risk None None None Yes
Pledge Yes No Yes Yes
Cost of Holding Nil Fund Management cost applies. (Generally between 0.50 – 1.00% per year. (Generally between 0.50 – 1.00% per year. Fund Management cost applies. (Generally between 1.00 – 1.50% per year. Nil

Should You Invest In Gold?

Wow or Oops!

Let us look at the recent Gold ETF returns..

Returns ( as on 31-May-20)

1 Year 3 Year 5 Year 7 Year
46% 16% 11% 7%

Source:MFI, Fundsindia Research Returns ( as on 31-May-19)

1 Year 3 Year 5 Year 7 Year
2% 2% 3% 0%

Oops. We need to sell Gold 🙁

Same asset class – but two completely different interpretations!

Note: Returns of Nippon India ETF Gold BeES (largest Gold ETF with AUM above Rs. 3,500 crs) is used for illustration How do we form our return expectations?