Digital gold: make your portfolio shine this Diwali
It is that time of year when buying gold is considered auspicious. This is the time when huge crowds flock to jewelry stores and sales reach the peak of the year. However, buying physical gold is not without hassle as there are many concerns such as the purity of the gold and the high manufacturing costs. Digital gold has therefore become popular because it is not only easy to buy but also easy to store.
Given the benefits of digital gold, the next tranche of Gold Sovereign Bonds (SGB) 2021-22 will be open for five days starting October 25. It will be sold in four tranches until March 2022. SGBs are securities denominated in grams of gold, which are issued by the Reserve Bank of India (RBI) on behalf of the Indian government. Although there is a sovereign guarantee, there is no physical gold medium in the SGBs.
Here is an overview of the characteristics of GBS and other types of digital gold:
Interest rate: What sets SGB apart from other digital assets is the fact that it also offers an interest rate of 2.50% per annum. To give you an idea, if the price of gold is Rs 50,000 per 10 grams, you will also receive interest of around Rs 1,250 each year. At maturity, the value of gold at current market prices is returned along with interest income.
The important point to note here is that gold prices are determined by the rule of supply and demand and therefore can go down as well. However, even if the prices fall, the gold units remain the same.
How much can we buy? : You can buy a maximum of 4 kg per year and a minimum of 1 gram of gold through these bonds.
Mandate: The bonds mature in eight years. However, it gives an option to exit in the fifth, sixth and seventh years on the interest payment dates.
Issue price: The issue price is determined on the basis of the average of the closing prices of the last three working days of the week preceding the subscription period. To decide the tariffs, the price of gold of purity 999 is taken into account.
Online purchase : If you buy online, prices are reduced by Rs.50 per gram for those who subscribe online and pay digitally.
Collateral: It can also be used as collateral for a loan.
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Taxation: It is important to note that there is no tax on the redemption of SGB after the completion of eight years. However, if you sell it before 36 months, Short-Term Capital Gains Tax (STCG) is levied based on your income tax bracket. If sold after 36 months, the profit is taxable as long-term capital gains at 20 percent after indexation.
If you have a Demat account, you can invest in ETFs the same way you buy and sell stocks. It also gives them great liquidity as they are listed on the stock exchange.
Taxability: If sold after three years, ETFs are considered long-term capital gains and taxed at 20% after indexation. If it is sold before three years, then it is considered a short-term capital gain and taxed according to your income tax slab.
Gold funds invest in gold ETFs and are sold by mutual funds. Here, as with any other mutual fund system, net asset values ââare reported daily at the end of trading hours. These funds are suitable for those who do not have a mat account but still want to invest in digital gold. However, they are more expensive than investing in gold ETFs because you have to bear the cost of gold ETFs and gold funds. The taxation is similar to that of ETFs on gold.
Experts advise investors to invest at least 15 percent of the silver in gold. As gold prices are inversely related to stocks, this makes it a good hedge against uncertainties in the stock market.
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