By Irshad Mushtaq
Investing in gold can be simplified and cost-effective if done correctly.
Let’s explore two popular methods: Sovereign Gold Bonds (SGB) and Gold Exchange-Traded Funds (ETFs).
1. Sovereign Gold Bonds (SGB)
Interest Benefit: SGBs not only track the market price of gold but also offer an annual interest rate of about 2-3 %, min , which is paid semi-annually. This is an added advantage over other forms of gold investment.
No Making Charges: Unlike physical gold, which incurs making charges between 10% to 25%, SGBs are free from these expenses, making them a cost-effective alternative.
2. Gold Exchange-Traded Funds (ETFs):
Lower Expense Ratio: Gold ETFs provide a lower cost option as they have minimal expense ratios compared to buying physical gold.
Liquidity and Easy Trading: They offer the flexibility of trading on stock exchanges, allowing you to buy and sell anytime, similar to stocks.
Why Physical Gold is Less Favorable
Making Charges and Premiums: Physical gold, such as jewellery or small gold coins, includes making charges and premiums that can be as high as 20% above the market price. When selling, these costs generally cannot be recovered.
Loss of Returns: Buying and selling physical gold repeatedly can eat into your potential returns due to the high transaction costs. The Digital Advantage The digital shift in gold investment has transformed how we secure and manage our investments:
Paperless Transactions: Buying gold digitally reduces the risk associated with physical storage and insures the investment within the regulated frameworks by entities like the Central Depository Services Limited (CDSL) and the National Securities Depository Limited (NSDL).
Regulatory Backing: Both methods are regulated by the Securities and Exchange Board of India (SEBI), ensuring safety and credibility in your gold investments. Relying on Tradition vs. Modern Methods Traditional gold buying has its history, but it is often not the most financially prudent method. It’s important to acknowledge that while gold merchants may promise liquidity, during times of financial stress, they may not be able to buy back large quantities. Digital investments, supervised by SEBI, offer a secure and scalable alternative. Lastly, adapting to these modern investment techniques ensures that you capitalize on gold’s financial benefits more effectively.
- Learn from the insights of @Irshad Mushtaq, Writer, Investor, Entrepreneur & Founder of M I Securities! Connect for valuable financial advice at [email protected]
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