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Sovereign Gold Bond vs Gold ETF: Where should you invest?


Sovereign Gold Bond vs Gold ETF: Gold is one of the most favoured investment options as it works as hedge against inflation. But, when there is more than one option available for investment, an investor may get confused as all of them track price of gold. As per the tax and investment experts, Sovereign Gold Band and Gold ETF (Exchange Traded Fund) are suitable for two different types of investors. They said that those investors who want to invest for short-term keeping liquidity in focus, Gold ETF is better as it allows an investor to liquidate one’s money at its will. However, for the medium and long-term investors, Sovereign Gold Bond is better as it gives 2.5 assured returns along with income tax exemption on one’s maturity amount.

Speaking on Sovereign Gold Bond vs Gold ETF Manikaran Singhal, founder at goodmoneying.com said, “Both are hedge against investment but gold ETF is suggested for those investors who have small time-frame for investment. For those investors who want liquidity in one’s investment Gold ETF is a better option as in the case of Sovereign Gold Bond, there is 8 years lock in period, if the investor wants tax exemption on one’s maturity amount.”

Suggesting long-term investors to prefer Sovereign Gold Bond ahead of Gold ETF SEBI registered tax and investment expert Jitendra Solanki said, “Those investors who want to invest in gold keeping long-term time-frame in mind, Sovereign Gold Bond is better as it helps an investor to accumulate gold by averaging in various tranches made available by the Reserve Bank of India (RBI) from time to time. However, it has a lock-in period of 8 years — first 5 years from the date of bond purchase and next 3 years for trading. An investor is given choice to liquidate one’s money after 5 years but in that case the investor will have to lose the Long Term Capital Gain (LTCG) exemption being given under the scheme. So, to avail the tax exemption under Sovereign Gold Bond Scheme, the investor needs to keep the money invested for 8 years.” he said that apart from tax exemption, the Sovereign Gold Bond Scheme gives 2.5 per cent assured return to the investor which is not available in the Gold ETF scheme.

Solanki said that after 8 years, the maturity amount will be automatically transferred in one’s given bank account. He said that in Sovereign Gold Bond Scheme, the investor has no option to decide the maturity date and the maturity amount is decided on the basis of the average of last three business days’ close price of gold before the redemption date.

Highlighting the money outgo in Gold ETF Manikaran Singhal said that Gold ETF levies fund management charges and brokerage at the time of entry and exit from the investment, which is exempted in Sovereign Gold Bond Scheme.

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