Gold is a popular consideration when diversifying your investment portfolio, as it adds value in many forms. In fact, expert advisors suggest investing at least 10-20% in gold assets. This does depend on your risk appetite.
While this precious metal acts as a perfect hedge against inflation, investing in gold also helps you tackle currency risk. Best of all, there are many forms of gold to invest in. Two of the most popular variants, besides physical gold, include:
Gold Exchange Traded Funds (ETFs)
Sovereign Gold Bonds (SGBs)
With increasing prices of physical gold, it may be wise to consider these alternatives.
Amongst various investment avenues, investing in gold assets has emotional and social relevance in India. With features like easy availability and faster liquidity, gold is known to help investors sail through a financial crisis.
While you can easily purchase it from any jeweller, there is no limit to buying gold. However, remember to keep your gold invoices intact, as that may help you during income tax filing.
See the table to understand the key difference between SGBs and physical gold.
Criteria |
Physical Gold |
Sovereign Gold Bonds |
Availability |
Available in the form of coins, biscuits, bars, and jewellery |
Available in digitised and paper formats |
Rates |
Volatile prices that can fluctuate depending on the economic climate |
Fixed by the Government of India based on the latest market rates |
Investment Window |
No fixed investment timeline |
RBI announces the subscription window |
Liquidity |
Easy to liquidate |
Comparatively less liquid and can only be redeemed after a tenor of 5 years |
Lock-in Duration |
Nil |
5 years |
Interest Rate |
Nil |
2.50% p.a., with interest earnings paid half-yearly |
Demat Account |
Nil |
It is not compulsory to open a Demat account. However, you can hold your SGB units in a Demat account if you have one |
Risk Factor |
High risk of physical gold being stolen or misplaced |
Nil as there is no threat of SGB being stolen |
While there are many pros to investing in Sovereign Gold Bonds, physical gold investments also have their share of advantages. For example, it is easy to liquidate physical gold during emergencies, as mentioned.
Moreover, owning physical gold provides you with complete control. This means you can decide when to sell or buy the physical gold. Whatever investment option you choose among SGB vs physical gold, analyse all the pros and cons before investing.
No. While SGBs are represented in grams and the value is linked to 999 purity gold, they are not backed by physical gold.
No, SGBs cannot be converted to physical gold. These bonds are available only in digital or paper form. However, you can convert your SGBs into cash.
The price of SGBs appreciates when the rate of gold increases and there are no hassles of storing it, unlike physical gold. Also, investing in SGBs is comparatively cheaper than buying physical gold.
You also get the added benefit of earning an interest rate of 2.50% p.a. on the principal amount when you buy SGBs.
No, you cannot claim physical gold when redeeming your SGBs.
When planning for long-term investments, opting for SGBs is a better option. This is because you get to earn an additional 2.50% p.a. interest rate on these bonds.
When considering the liquidity factor, investing in physical gold is ideal. This is because you can sell your physical gold anytime you wish. However, this is not so in the case of SGBs, as they come in with a lock-in period of at least 5 years.