SGBs vs Phsical Gold
Posted by Kams Mis on July 11th, 2022
What is physical gold?
If gold is in tangible form, it is the most popular type of investment. It can be purchased as jewellery, gold coins, gold biscuits, and gold bars. Unlike the acquisition of digital gold, the purchase of real gold is normally kept very private.
Any jeweller can provide you with the yellow metal. As a result, there is no need for a broker or intermediary, and there is no counterparty risk. Physical gold can be purchased in any amount. However, gold biscuits are sold in increments of 10 grammes, thus the minimum investment in actual gold is slightly higher. It is always recommended that you save tangible proofs of all your gold purchases. It will aid them in the preparation of their tax returns.
Physical gold was universally accepted. It can be liquidated at any time, anywhere in the globe, for immediate cash. Physical gold is taxed in the same way as debt securities are. Gains are taxable at the income tax slab rates in the short term (before three years). Long-term capital gains are subject to a 20 percent tax rate with an indexation advantage. In addition, there is a 4% surcharge and a 4 percent cess (if applicable).
Theft is one of the most significant risks of owning actual gold. Because gold is a real and valued asset, it is vulnerable to theft. The gold you buy can be of poor quality, and purity is a major worry. Furthermore, storing actual gold incurs significant costs. Making charges for gold jewellery can be fairly expensive. Furthermore, gold prices differ from one dealer to the next and are not consistent.
Wealth tax is required for purchases exceeding INR 30 lakhs. As a result, purchasing actual gold entails significant fees. Furthermore, the resale value of real gold is lower than that of digital gold.
Benefits of investing in physical gold
Following are the benefits of investing in physical gold:
What is Sovereign gold bonds?
Sovereign gold bonds are government securities issued on behalf of the government by the Reserve Bank of India (RBI). Each unit is one gramme of gold, and they are denominated in gold. The interest rate on these debt securities is fixed. They can also be sold in the secondary market to profit from capital gains.
Individuals and HUF can invest as little as one gramme and as much as four kilogrammes in these bonds. The maximum limit for trusts and entities, on the other hand, is 20 kgs, as determined by the government from time to time. Individual or cooperative SGBs are possible. The limit also applies to the first applicant in a joint application. Nationalized banks, scheduled private and foreign banks, authorised stock exchanges, Stock Holding Corporation of India Ltd. (SHCIL), and designated post offices are all places where SGBs can be applied for. These bonds can also be applied for online through the websites of recognised commercial institutions. SGBs are held in the form of certificates and can also be dematerialized. As a result, there is no chance of theft or extra storage expenditures.
Interest and Taxation
SGBs have a set interest rate of 2.5 percent each year. Interest is paid out every six months and is taxable at the individual income tax slab rates. Interest income, on the other hand, is exempt from TDS. The bond has an eight-year term and a five-year fixed lock-in period. From the fifth year onwards, the bond can be sold on the secondary market through stock exchanges. Premature redemption gains, on the other hand, are taxable in the same way that real gold is.
The bond matures after eight years, and the redemption funds are automatically deposited to the bank account. The capital gains earned at the end of the term are tax-free. The buy and redemption prices are determined by averaging the closing prices of gold with a purity of 999 over the previous three days. The gold prices will be published by the India Bullion and Jewelers Association Limited (INR).
Benefits of investing in SGBs
Following are the benefits of investing in SGBs:
Gold is the most sought-after asset, with social and emotional significance. It has long been a popular investment in India. With the passage of time, gold investment has undergone numerous modifications. Gold coins, jewellery, and gold biscuits aren't the only ways to invest in gold. Digital gold has been issued by the Indian government in the form of certificates and mutual funds that can be stored in a dematerialized format.
One need not be concerned about their gold being stolen, storage costs, or purity when investing in Sovereign Gold Bonds. However, with these bonds, there may be a liquidity concern. Physical gold is widely accepted and may be sold for cash almost anyplace. SBGs, on the other hand, have a 5-year lock-in period and mature after eight years. As a result, before investing, one must weigh both options in terms of liquidity, minimum investment, and storage, among other factors.
Physical gold vs. Sovereign gold bonds: Having gold in an investing portfolio is critical for diversification. Furthermore, as compared to other investments, gold is more stable during market instability. It functions as a buffer against inflation and economic uncertainty, allowing the value of an investor's portfolio to remain stable.
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About the AuthorKams Mis
Joined: July 11th, 2022
Articles Posted: 2
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