Akshaya Tritiya is an auspicious occasion to buy or add gold to your investment portfolio. Investing in gold has many advantages as the price of gold normally goes up during turmoil like the current Russia-Ukraine war which is making gold the most preferred asset class. Also, inflation has been on a rise and many households in India use gold as a hedge against inflation.

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Apart from physical gold, there are 3 investment options -- Sovereign Gold Bonds (SGB), Gold ETF and Digital Gold. Each has distinctive features and conditions.

Here is all you need to know about the three to decide which one you should invest in this Akshaya Tritiya.

Sovereign Gold Bonds (SGB)

SGBs are government securities issued by the Reserve Bank of India. They are denominated in grams of gold and are considered substitutes of physical gold. SGBs allow investors to own gold (not in physical form) and earn interest on it. You need to pay the issue price in cash at the time of purchase and the payment on redemption will also be in cash as per the current market rate of gold.

Investment

You can invest in SGB for a minimum of 1 gram of gold. The maximum limit for individuals is 4 kg and 20 kg for Hindu Undivided Family (HUF) and for trusts and similar entities notified by the government.

Interest Rate, Returns and Tenure

Investment tenure for SGBs is 8 years, premature redemption is allowed from 5th to 7th year. The bonds bear a fixed interest rate of 2.50 percent per annum on the nominal value.

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Taxation

There are no taxes on capital gains from redemption of SGBs if you hold them till maturity. The interest earned on the bonds is taxable as per the Income Tax Act, 1961. For premature redemption in less than three years, investors will need to pay Short Term Capital Gains (STCG) tax as per their income tax slabs and in case of premature redemption after a period of three years, investors will need to pay 20 percent Long Term Capital Gains (LTCG) tax after indexation.

Gold Exchange Trade Funds (ETF)

Gold ETFs are units that represent physical gold in a paper or dematerialized form. Investors can trade in Gold ETFs just like stocks, through a demat account and a broker. One gold ETF unit is usually backed by 1 gram of physical gold and upon selling ETFs, investors get cash and not physical gold.

Investments:

You can invest for as low as 1 gram of gold and to invest in gold ETFs, you need a trading account, a share broker and a demat account.

Charges

Gold ETFs include no entry or exit charges but there are three important costs such as expense ratio, broker cost and tracking error. Usually, Gold ETFs incur recurring annual charges of around 0.5-1 percent.

Taxation

In case of STCG (holding period less than 3 years), it will be included in 'Income from Other Sources,' and taxed at the investor's income tax bracket. The gains in case of LTCG (holding period of more than 3 years) are subject to 20 percent tax, post indexation benefits.

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Digital Gold

Digital gold is a virtual way of investing in 24 carat 99.9 percent pure gold that does not require actual possession of the commodity. You can buy digital gold via the online payment or UPI and the seller will provide a digital invoice for the transaction within 5 minutes. The company you buy digital gold from, stores the gold in its safe vault and thus, the risk of theft is eliminated. Also, the purity of digital gold is assured as it is certified by government-licensed entities.

Investment

Digital gold investment amounts can start from Re1. You can sell or buy digital gold from the comfort of your home, and it offers instant liquidity without any hassle.

Most platforms have a limit of Rs 2 lakh for digital gold investments.

Charges

A GST of 3% is levied on purchase of digital gold.

Tenure

Generally, a limited storage time is provided for digital gold after which it has to be delivered physically or sold.

Taxes

If the investment or holding period of digital gold is less than 3 years STCG tax at applicable Income Tax rates must be paid. If held for more than 3 years, it will be subjected to the LTCG tax at 20 percent post indexation benefits.

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(Edited by : Sudarsanan Mani)

First Published:Apr 28, 2022 4:15 PM IST