One of the most ideal times to buy gold in India is Dhanteras, which marks the commencement of Diwali. Gold represents riches and prosperity as well. People used to invest in gold by purchasing it physically, such as ornaments, coins, or bars. However, smart investors these days are turning more and more towards strategic financial investments offering them a better ROI than owning physical gold. If you are wondering about how to buy the best gold this Dhanteras, there are three methods: SGBs, Gold ETFs, and Gold Fund of Funds.
Though each of the three has its advantages and disadvantages, they mainly serve different financial goals and investment strategies.
1. What are Sovergin Gold Bonds?
SGBs, therefore, are government bonds issued for the people, related to the market value of gold. Therefore, SGBs stand as a good option for investors with long-term perspectives because the investment will be secure.
Advantages of SGBs:
- Annual Interest: Earn 2.5% annual interest, coupled with the potential to make more if the gold price increases.
- Tax-free returns: If held until maturity, say after 8 years, the entire gain is completely tax-free.
- Governed by the Government: As these are issued by the Government of India, they are essentially risk-free.
Drawbacks of SGBs:
- Limited availability: New issues are not always open; you may have to buy them on the secondary market.
- Liquidity Issues: They are almost tricky to sell before maturity, since market demand tends to fluctuate.
Who Should Buy?
SGBs are worth a try if one is looking forward to a safe, long-term investment with stable returns.
2. What are Gold Exchange Traded Funds?
Gold ETFs are schemes invested in gold bars of 99.5% purity or above and listed/ traded on stock exchanges. They are the best-suited option for the short- to medium-term investor.
Advantages of Gold ETFs:
- High Liquidity: You can trade your units at any time during market hours for tremendous flexibility.
- Transparent Pricing: ETF prices closely follow real-time gold rates, ensuring fair transactions.
- Low Management Fees: Generally speaking, the management fees for Gold ETFs are lower compared to other mutual funds dealing in gold.
Drawbacks of Gold ETFs:
- Requires Demat Account: This requires investment in mutual funds, for which you need to have a dematerialized and trading account.
No Interest Unlike SGBs, there is no annual interest payout with ETFs.
Who Should Buy?
For flexibility in the case of trading gold efficiently and speedily, Gold ETF is among the better options.
3. What Are Gold Fund of Funds (FoFs)?
Gold FoFs are mutual funds that invest in Gold ETFs and allow for indirect investments in gold prices. This is a good avenue of investment, especially for people who would rather invest through SIPs on a regular basis and do not maintain a demat account.
Advantages of Gold FoFs:
- No need to open Demat account, investment can be made from any mutual fund platform without taking additional accounts.
- The SIP option provided by the FoFs enables small investing in money amounts at regular intervals, thus accumulating gold over a period of time with much ease.
Drawbacks pertaining to Gold FoFs:
- Greater Cost: You pay management fees to both the FoF and the underlying ETF.
- Limited Liquidity: Unlike ETFs, you can only buy or redeem FoF units at the day’s end.
Who Should Buy?
Well, in that case, if you want to make simple investments in gold regularly without opening any demat account, then FoFs are just for you.
Best Gold to buy this Dhanteras: Comparison of SGBs with Gold ETFs with Gold FoFs
| Feature | SGBs | Gold ETFs | Gold FoFs |
| Best For | Long-term holding | Short-term trading | Regular SIPs |
| Liquidity | Moderate | High | Low |
| Returns | Gold price + 2.5% | Tied to the gold price | Linked to gold price |
| Demat Required | No | Yes | No |
| Tax Benefit | Tax Free on Maturity | Capital gains apply | Capital gains apply |
Recent Trends in Gold ETFs and FoFs Performance Gold ETFs have been attracting a lot of attraction with their stellar performance. The category of funds has returned an average of 29.12% over the last one year. At the top of this chart stood the LIC MF Gold ETF, with returns of 29.97% for a period of 1 year, 17.47% over 3 years, and 13.87% over 5 years.They have also lured investors, with the latest being the launch of a Gold ETF Fund of Funds by Zerodha, riding on growing demand for gold-based investments.
The right gold investment to make this Dhanteras will depend on the financial objective of the investor. Your investment in gold this Dhanteras must be in tune with the financial strategy as well as the festive spirit. Be it the SGBs on account of assured returns, ETFs due to ease in trading, or FOFs on account of accumulation on the basis of SIPs, each one has some merits over the rest. While the price of gold is expected to stay strong, this festive season does offer a golden opportunity for investments in securing your financial future. Whichever route you take, may your gold investments sparkle as brightly as the lights of Diwali!
Also Read: Is it the right time to invest in gold in India? A guide based on current gold rates