Life after SGB: Other good options to invest in gold

No one knows when the government will issue a fresh batch of sovereign gold bonds (SGBs). The last time it did so was in February 2024.

If media reports are to be believed, no new tranches are likely to be launched this year.

So, how does it matter?

Sovereign gold bonds (SGBs) have long been a reliable choice for Indian investors looking to buy gold.

That's because SGBs:

• Are backed by the government, which means they are safe.
  
• Make you extra money. They provide a 2.5 per cent annual interest over and above the appreciation of gold price. The interest is paid every six months.
  
• They are tax-efficient. If they are held until maturity, the gains are tax-free.

What are the other options?

You can go to the stock exchange to buy and sell SGBs.

However, they are currently available at a premium, making them less attractive to cost-conscious buyers.

For instance, the SGB tranche issued in February 2024 is trading at a premium of nearly 12 per cent. This means that investors buying it at this point will have to hope that gold prices go up 12 per cent for them to break even.

So, SGBs are costly now. Any other ways to invest in gold?

Gold ETFs (exchange-traded funds)

Gold ETFs are mutual fund schemes that track gold prices and are traded on stock exchanges.

• Who should opt for ETFs? Investors with an existing demat and trading account.
  
• Benefits: Lower expense ratios and real-time trading.
  
• Drawbacks: They require a demat account, which incurs brokerage fees. Demat accounts do not support systematic investment plans (SIPs) , either.

Gold FoFs (fund of funds)

Gold FoFs invest in gold ETFs, providing an indirect way to gain exposure to gold prices.

• Who should opt for FoFs? Investors without a demat account or those seeking simplicity.
  
• Benefits: Allows investments through SIPs and is beginner-friendly.
  
• Drawbacks: Slightly higher expense ratios compared to ETFs.

Why shouldn't I directly invest in physical gold?

That's because it has storage and security issues. Unlike SGBs or gold ETFs, physical gold doesn't offer any interest or dividends.

Conclusion

We will have to look past SGBs, for now.

For those seeking simplicity, gold FoFs provide a practical alternative, while gold ETFs cater to cost-conscious investors with demat accounts.

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Also read: SGBs are costly now. How else can you invest in gold?

This article was originally published on December 12, 2024.