In order to compare or analyse how these instruments stack up against one another, we’ll take the help of data tabulation as follows: –
|Parameters||Sovereign Gold Bonds||Physical Gold||Gold ETF|
|Investment limit||A minimum of 1 gram and maximum of 4 KG in case of an individual (as per SGB 2020-21 rules)|
No such limit
|A minimum of 1 gram and no maximum limit|
|Safety/ Security||It is the safest in terms of lower risk of theft||It has the highest risk of theft than other forms||It is also comparatively more safe with regard to theft|
|Liquidity||It involves limited liquidity||They are highly liquid||They are also highly liquid|
|Annual fund management fees (AMC)||It does not include AMC||Physical gold also does not include AMC||It includes AMC|
|Total Returns||SGB have higher than actual return on gold because of the interest payable on bonds during the holding period||It has lower than actual return on gold||It also has lower than actual return on gold|
|Exit / redemption option||Only from 5th year||Exit at any time||Exit at any time|
|Long-term Capital gains (LTCG)||It is applicable after 3 years except, when it is held till maturity, then no capital gain tax is applies|
It is applicable after 3 years
|It is also applicable after 3 years|
|Tradability/ Liquidity||These are tradeable on exchange, can be redeemed from 5th year||They are liquid and tradeable but also involves more risk of theft or cheating than the other two options.||They are tradeable on exchange|
|Quality check required||No||Yes||No|
|Brokers charge on buying||No||No||Yes|
|Capital depreciation/ appreciation||Yes|
|Purity of Gold||High as it is in Electronic Form|
Purity of Gold always remains a high concern
|High as it is in Electronic Form|
|Interest on investment||Yes||No interest on investment||No interest on investment as there is no dividend option provided|
|Collateral against Loan||Yes||Yes||No|
|Storage Cost||Very Low as it is held in the books of Central bank||It’ll include high locker cost if the gold is kept in lockers||Very Low as they’re held in demat form.|
|Purchase value (if prices are taken as that on 1st April 2019)||INR 3117 ( last 3 days average closing price as per SGB manual) ||INR 3284 (INR 2985 per gram 22k + value addition at 10% – wastage/ tax/ making charges) ||INR 3256 ( value per unit INR 3163 + value addition 3% – tax) |
|Return on holding period (if we assume the price of gold after 8 years to be INR 4000)||28.32% ((4000-3117)/ 3117*100) ||21.80% ((4000-3284)/ 3284*100) ||22.85% ((4000-3256)/ 3256*100) |
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