With the increasing inflows in gold-related investment products this year, the demand trajectory has been witnessing an upward flow. More than return-based outlook, investors often incline towards gold as a hedge against market uncertainty.
As the auspicious occasion of Dhanteras approaches this week, a growing number of individuals are seeking gold-related financial products that offer long-term value. Here are few gold-related financial products that can be a good bet this festive season.
Gold ETFs
Gold ETFs often mirror the performance of physical gold in the domestic market. When you purchase these digital gold instruments, you're essentially investing in gold without actually owing the physical metal. The convenience lies in their similarity to stocks, making them easy to buy and sell. This eliminates concerns about the storage and security of physical gold like bars or coins. These instruments don’t attract STT (Securities Transaction Tax).
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The annual returns for various gold exchange-traded funds (ETFs) are as follows: Axis Gold ETF boasts an annual return of approximately 17.9 per cent, while Kotak Gold ETF offers a slightly higher return at approximately 19.8 per cent. Meanwhile, ICICI Prudential Gold ETF provides an annual return of about 17.6 per cent, and SBI ETF Gold matches Axis Gold ETF with a return of approximately 17.9 per cent. On the other hand, HDFC Gold ETF offers a return of around 17.5 per cent.
Gold Mutual Funds
A gold mutual fund electronically invests in gold through a gold ETF, with unit prices linked to the gold ETF's performance, which, in turn, reflects the price of physical gold. They provide indirect exposure to gold through investments in gold bullions and gold ETFs. Unlike gold ETFs, they don't necessitate a DEMAT or trading account. However, it's important to note that early redemptions may result in expenses and exit loads if done within the first year.
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Sovereign Gold Bonds
While there is a chance of extreme price rate fluctuations in the above two instruments, SGBs or Sovereign Gold Bonds pave way for a much safer alternative if one is planning to invest in the yellow metal.
Sovereign Gold Bonds (SGBs) are government-issued securities, with values denominated in grams of gold. Investors are required to make cash payments for these bonds, and they receive cash upon maturity. The bonds offer a 2.50 per cent annual interest, payable semi-annually. They come with an 8-year tenure and allow investors exit options in the 5th, 6th, and 7th years, aligning with interest payment dates. Individual subscriptions are limited to a maximum of 4 kg.
Physical Gold
Gold in its physical form is subject to a complex web of taxes, particularly when it comes to jewelry. These taxes include making charges, cess, GST, import duty, TDS, and STCG if the sale occurs within 3 years of purchase. While simpler gold forms like bars and coins may see a slight decrease in tax rates, the overall tax burden remains substantial.
The price of gold has surged by over 20 per cent since the beginning of last year.
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