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Gold vs Gold bond vs Gold ETF: Key differences and expected returns - compared

03 July 2019


Gold ETF or Gold Funds are preferred over physical gold or gold bond as it can be liquidated as and when an investor wants without finding a buyer.


Gold vs Gold bond vs Gold ETF: Gold investment has always been an attractive option among Indians. Sensing this psychology of the Indian investors, the Government of India launched gold bonds to generate money from the market. It's a cheaper form of money generation for the Indian government because its repayment is subject to gold price appreciation, which is lower than any lending institution, say experts. However, when it comes to Gold ETF or Gold Funds, the majority of the investment experts bat for this option as the taxes levied on physical gold is also levied here but it can be liquidated as and when an investor wants without finding a buyer as the asset management company would be the buyer whom they can sell at the current market price electronically.


Speaking on the gold investment Manikaran Singh, a SEBI registered investment expert said, "Gold ETF, Gold Fund or Gold bond is better than physical gold because it's easier to liquidate without any storage problem which a physical gold holder comes across. However, the gold investment should be for the long-term, say twenty or above years as the returns on it would be in sync with the gold price appreciation in the spot market." Asked about the form of investment in electronic gold Manikaran Singh said that an investor can invest in Gold ETF or Gold Fund even in the SIP (Systematic Investment Plan) mode and it would give almost same returns as an investor can get in normal Mutual Funds SIP available in the market. Manikaran again maintained that the return he said is for the long-term.


Commenting on the taxes involved in the gold investment Kartik Jhaveri, Director — Wealth Management at Transcend Consulting said, "All taxes that are involved in the physical gold is being levied on Gold Fund and Gold ETF investment. However, in the case of Gold Bonds, the Long Term Capital Gain (LTCG) is exempted but the Gold Bond is not always available for investing. It is launched by the Government of India when it needs to generate money from the market at cheaper rates." Kartik Jhaveri said that Gold Bond is not an investment. In fact, it's a loan that Government fo India takes from the public in general. Gold Bond is subject to lock-in and it has a maximum investment limit. Since investment is a regular process, it's not advisable for an investor to wait for the Gold Bond keeping its money choked. So, if an investor has surplus money in its portfolio, he or she can invest that into the Gold ETF or any other Gold Fund for the long-term.