There are two kinds of Gold investors, investors who relish physical gold and those who prefer having gold on paper, purposely to earn the returns. For a long time, investors in ‘paper’ gold have had gold funds as the most convenient and logical option. Recently the government presented a better option for investors through the Sovereign Gold Bonds Scheme.
A Sovereign Gold Bond Scheme provides an indirect route to invest in gold where instead of purchasing physical gold, investors can invest in a bond where the underlying asset is gold. These bonds will track the price of gold and have a tenor of 8 years.
Below are 3 reasons why Gold Bonds Schemes are better investment options for the precious metal
Save on Capital Gains Tax:
On his budget 2016 speech, Finance Minister Arun Jaitley proposed, to exempt gold bonds from capital gains tax at the time of redemption. An investor who holds the bonds to maturity will not pay capital gains taxes on the profit made. However, long-term capital gains arising from the sale or transfer of the sovereign gold bond will attract capital gains tax at 20% after the indexation benefits. Furthermore, a short term capital gains tax will be applicable to bonds sold before completion of 3 years and is applicable according to an investors income tax slab.
Earn More than the Capital Gain
When compared to other options of investing such as physical gold or gold Exchange Trade Funds (ETF’s), gold bonds give the investor not only the capital appreciation but also an interest payment. The interest earned on a gold bond is calculated based on the corresponding value of the gold in rupees. Care should be taken because not only is this interest is taxable but also it is not deducted at source; (TDS) is not applicable on the bond but it is the responsibility of the bond holder to act in accordance with the tax laws.
No Charges Incurred
Investing in gold ETFs or Gold mutual normally attracts ‘fund management charges’, this is however not the case for gold bonds. Furthermore, investors do not have to be concern about the storage of physical gold or payment of safe deposit lockers in case of gold bonds.
In India, most of the gold investors prefer owning physical gold as compared to paper gold. Though changing this preference is expected to be a challenge, gold bonds offer the right recipe. Any investor looking to dive into gold for a long-term, gold bonds scheme are a better option than gold funds or physical gold.