You could invest in gold when gold prices fall. You shouldn’t worry about demand. Investing in physical gold means high liquidity. This is an investment that you can exit anytime at the prevailing gold buying rate, however, it is important to note that the buying and selling price of gold varies significantly. Suppose the selling price (the price at which bullion merchant sells the gold) is Rs 30K/10 gm, then the buying rate (the price at which the bullion merchant buys the gold) could be as low as Rs 28K/10 gm. So, if you buy and sell gold in a short duration, then you may lose lots of money due to the difference in buying and selling rate.
Gold ETF is also very liquid and trades on the stock exchange. You can sell it during a trading session at the real-time rate and the cost of selling is very low in comparison to the physical gold. You just need to pay the brokerage (including government duty) when you sell the ETF. There is a very thin difference between the buying and selling rates of gold ETF on the stock trading platform.
You can buy SGB through authorised banks and NBFCs as well as through the stock exchange trading platform. The expense of buying or selling SGB is very small in comparison to the physical gold. SGB can be bought or sold similar to ETFs, however, the tax implication will be different.
Investment in physical gold is highly susceptible to theft and burglary, however, if you invest in an ETF or SGB then you can keep the investment safely. Physical gold requires careful handling and is unsafe when kept at home. ETF and SGB are kept in the dematerialised form and held in a DEMAT account, therefore it is very safe and easy to handle.
If you hold physical gold, ETF or SGB for more than 3 years, then it is considered as a long-term holding and becomes eligible for long-term capital gain (LTCG) at 20% with indexation. Selling before 3 years is considered as short-term capital gain (STCG) and the gain is taxed as per applicable slab rate of the individual.
However, SGB allows one more advantage on the tax front. If you hold it until maturity and redeem it after it’s maturity period, then the complete gain is tax exempt.
The rates of ETF and SGB are linked to the physical gold rates. So, the capital appreciation benefit of all the three investment products are same, however, in addition to capital gain benefit, SGB also offers interest at 2.5% p.a. on the invested value to its investors. So, if you are investing for a very long period, then 2.5% p.a. interest can make a big difference to the overall return.
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