SGBs, physical gold or ETFs: Which is the best investment choice this Dhanteras?

As the festivities approach, investors face the perennial question: should they opt for physical gold, gold ETFs, or the lesser-known Sovereign Gold Bond Schemes (SGBs)?

In this article, we’ll delve into the historical significance of Dhanteras, explore the merits and demerits of each investment avenue, and shed light on why this year, SGBs deserve serious consideration.

Dhanteras: A celebration of wealth and prosperity

Dhanteras, also known as Dhanatrayodashi, holds profound cultural and religious significance in India. It signifies the 13th day of the Hindu calendar and is dedicated to the worship of Goddess Lakshmi and Lord Dhanvantari, the god of Ayurveda/Medicine.

The legend of Dhanteras tells the story of a young bride’s ingenious plan to save her husband from a prophesied snakebite death. She piled up all the gold and ornaments in the palace outside their door and kept her husband awake with stories and songs as the fatal hour approached. When Lord Yama, the God of Death, arrived in the form of a serpent, the brilliance of the treasures and the bride’s melodious songs distracted and charmed the snake. As the time for the predicted death passed, the snake departed, sparing the prince’s life. This legend gave rise to the tradition of buying gold on Dhanteras, believed to bring good fortune and prosperity.

Investment avenues: Physical gold, gold ETFs, and SGBs

In today’s dynamic investment landscape, investors have a plethora of options to choose from when it comes to acquiring gold. These include holding physical gold, investing in Gold ETFs, or considering the often-overlooked Sovereign Gold Bond Schemes.

Physical gold, though cherished for its tangible presence, comes with its own set of challenges. It requires storage, carries purity concerns, and lacks the liquidity and convenience offered by its digital counterparts.

Gold ETFs, on the other hand, provide a convenient way to invest in gold. They represent physical gold in dematerialized form and offer flexibility similar to stock investments. However, they come with management fees and tax implications for long-term investors.

Sovereign Gold Bond Schemes: The standout choice

Among these options, Sovereign Gold Bond Schemes emerge as a standout choice for investors this Dhanteras. SGBs are government securities denominated in grams of gold, backed by a sovereign guarantee. They offer a unique blend of benefits that set them apart.

Aspect         Physical Gold         Gold ETFs   Sovereign Gold Bond Schemes (SGBs)
Storage and Purity Requires secure storage and purity checks. No storage or purity concerns. No storage or purity concerns.
Liquidity Less liquid; requires selling through dealers or jewellery stores. Highly liquid, traded on stock exchanges. Less liquid as compared to Gold ETF but sufficiently liquid, traded on stock exchanges.
Interest Income Does not offer interest income. Does not offer interest income. Offers 2.5% annual interest, taxable as per the investor’s tax bracket.
Tax Implications Subject to capital gains tax upon sale. Subject to capital gains tax upon sale, potentially long-term or short-term. Capital gains are tax-exempt if held until maturity (8 years).
Sovereign Guarantee No sovereign guarantee. No sovereign guarantee. Comes with a sovereign guarantee.
Default Risk No default risk. No default risk. No default risk.

When considering investment options for gold, it’s crucial to weigh the pros and cons of each avenue. Physical gold, though cherished for its tangibility, entails storage and purity concerns and is less liquid. Gold ETFs offer convenience and liquidity but come with management fees and tax implications.

Let’s compare the three gold investment options – Physical gold, Gold ETFs, and SGBs – from a financial perspective using a hypothetical scenario.

Aspect Physical Gold Gold ETFs Sovereign Gold Bond Schemes (SGBs)
Initial Investment 100,000 100,000 100,000
Gold Price Increase (5 years, 5% annually) 127,628 127,628 127,628
Interest Income (5 years, 2.5%) N/A N/A 12,500
Final Return* 127,628 127,628 140,128

Please note that investors should consult with financial experts and consider their specific tax situations before making investment decisions.

Sovereign Gold Bond Schemes emerge as a compelling choice, particularly this Dhanteras. They offer the potential for capital appreciation, an attractive 2.5% annual interest, and the most significant advantage—tax efficiency. If held until maturity, SGBs are exempt from capital gains tax, making them a standout choice for long-term investors. 

Their liquidity, sovereign guarantee, and the potential to benefit from historical gold returns further solidify their position as an attractive investment avenue. It may also be noted that the tax exemption continues even if the SGBs are purchased in the secondary market or a bond platform. Further, investors can also exercise the put option available at the end of 5th, 6th and 7th year with the Government of India wherein they can redeem the NCDs.

As Dhanteras approaches, the decision to invest in gold carries substantial weight. While physical gold and gold ETFs have their merits, Sovereign Gold Bond Schemes stand out as a compelling choice for investors seeking tax efficiency, liquidity, and capital appreciation potential. 

With the added advantage of a sovereign guarantee and no expense in management, SGBs offer a robust investment avenue. This Dhanteras, consider the long-term benefits of SGBs and make a choice that aligns with your financial goals and aspirations.


Vibhor Mittal is COO, Aspero.

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Updated: 08 Nov 2023, 11:09 AM IST

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