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Sovereign Gold Bonds (SGB) Vs Gold Fund: Which is a Better Investment? – ET Money

Which of these two win after comparing their investment options on similar parameters, let’s check out.

Gold has always been the preferred investment option of Indian households as it bears an emotional value which makes it more than just a precious metal. Gold is bought on several auspicious occasions in the country. The modern age has got gold investments transitioning from physical form to digital form in the form of gold funds. Experts believe that investing in physical gold may not fetch much returns as compared to gold funds and people are realizing this fact and shifting their loyalties to Gold Mutual Funds as they fetch better returns. Sovereign Gold Bonds (SGB) and Gold Funds are the two most preferred options that are available if you want to invest in gold via funds.

However, many have doubts about the best investment option between the two. ET Money throws light on this subject and explains in detail about both options, and which stands as a better investment option.

What are Sovereign Gold Bonds (SGBs)?

These are government securities issued by the Reserve Bank of India. As they stand as substitutes for physical gold, they are denominated in grams. You can earn a steady rate of interest while holding these bonds. Furthermore, your invested amount is protected as you get the current market price at the time of redemption. What’s more interesting about SGBs is that these bonds can be converted into demat form and even traded on the stock exchange conveniently.

What are Gold Funds?

These mutual fund variants invest directly or indirectly in gold reserves. The major investments are done in mining stocks, gold producing and distributing entities as well as physical gold. Also, these are open-ended investments that invest in units of a Gold Exchange Traded Fund (ETF). By investing in these funds, you can guard yourself against market fluctuations and volatility.

Which is the better investment option out of these two?

SGBs are issued by RBI on behalf of the government, and you get a sovereign guarantee on the principal repayment and payment of interests. Therefore, it is regarded as a safe investment option, assuring your maturity amount. Whereas, gold funds are also relatively safer as they are regulated by the Securities and Exchange Board of India.

Gold funds offer better liquidity and hence can be considered a step ahead than SGBs which are not as liquid as gold funds and one has to hold the investment till its maturity.

SGBs score better than gold bonds as they offer better tax savings that fetches maximum benefits. However, you should note that the interest that you earn on bonds attract tax under the Income Tax Act, 1961.

Looking at the points mentioned above you can choose any one option which suits your investment needs.


By TIS Staffer
the authorBy TIS Staffer

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