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Should I switch from gold ETF to sovereign gold bonds?

Gold bonds score over ETFs on three counts

I have invested in Gold ETF. Is it advisable to switch to investing in Sovereign Gold Bonds?
- Anil Mathur

You may consider investing in Sovereign Gold Bonds. These bonds score over gold ETFs on three counts. One, they pay an interest of 2.50 per cent on initial investment, payable every six months. Two, gold ETFs charge management fees of up to 1.5 per cent, whereas gold bonds do not have any charges.Three, gold bonds are exempt from capital gains tax on redemption whereas the capital gains in gold ETF will be taxed for both short term and long term capital gains.

If interested, here is how sovereign gold bonds work.

You can buy sovereign gold bonds from banks and post offices after completing the know-your-customer (KYC) documentation. The value of one bond will represent the price of one gram of gold.

To attract small investors, the minimum subscription has been reduced to one gram of gold.

You have to invest up to a minimum value of one gram of gold. The maximum you can invest in a financial year is up to a value of four kilograms. These bonds come with a tenure of eight years and an exit option from the fifth year. You will earn an interest of 2.50 per cent a year, which will be paid half-yearly. These bonds can be converted to demat form. They will be listed on exchanges, which means you could exit them in the secondary market if you require the money before maturity. The redemption will be done on the prevailing price at the market. Interest will be paid on the original value of investment. You can use these bonds to take a loan.

The Sovereign Gold Bond is also exempt from capital gains tax on redemption. Indexation benefit will also be available to long-term capital gains on transfer of bond before maturity and complete capital gains tax exemption at the time of redemption.

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