Gold has traditionally been considered one of the most valuable investments in Indian households. It isn’t uncommon for people to gift those closest to them presents made of gold. The Indian government recognises the appeal that gold holds and provides investors with the option to invest in sovereign gold bonds. Additionally, ETF gold bonds were also introduced.
For a detailed read on Sovereign Gold Bonds, visit this blog.
Now, sovereign gold bonds are emphasised over gold in their physical form because they generate greater returns, and you don’t need to spend additional money on storing them safely. In the same regard, mutual funds are worth a look. They have also performed exceptionally well in recent times and are the investors' top picks. Let's look at the difference between gold mutual funds and gold ETFs.
These bonds were introduced in November 2015 to reduce the demand for physical gold and shift the focus to investing in financial savings. The Regulatory Authority is responsible for issuing these bonds on behalf of the Indian government. These government securities have a gold denomination where each unit amounts to a single gram of gold.
One can invest in these bonds through nationalised, scheduled private and foreign banks, and authorised post offices and stock exchanges. With an interest of 2.5% applicable per annum, SGBs have a tenure of 8 years. Although early encashment is available from the fifth year.
Looking to invest in Sovereign Gold Bonds in 2023? Read this guide before you do!
Mutual funds are owned by asset management companies that put together a fund management team. This team pools together the money investors bring with them and directs it towards varied securities, including stocks and bonds, to achieve a common objective.
Since these funds are professionally managed, investors need not worry about having ample knowledge of the markets. Investors also get to enjoy diversified portfolios for a relatively affordable price.
Exchange-traded funds are similar to mutual funds as they’re both pooled investment securities. These funds often track a particular index, commodity, or sector. One of their most prominent differences from mutual funds is the ability to sell or buy ETFs on a stock exchange like any ordinary stock. ETFs also have several underlying assets like mutual funds, and gold ETFs feature gold as their underlying asset.
The table below shows how SGBs differ from gold ETFs.
Gold has emotional and social value in India, making gold bonds an alternative to physical gold. Mutual funds are also great investment tools. You can consider diversifying your portfolio based on your financial goals and risk understanding. In short, Sovereign Gold Bonds (SGBs) offer a government-backed alternative to physical gold with fixed returns, while Mutual Funds (MFs) provide market-linked returns through diversified investments. Investors should consider their financial goals, liquidity preferences, and taxation aspects before choosing between the both.
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Yes. Apart from the regular returns, you get an additional 2.5% interest per annum.
Sovereign Gold Bonds have a tenure of 8 years after which they can be redeemed. (Redemption is also possible after 5 years).
