The gold standard of investing: Choosing between ETFs, SGBs, and physical gold this Dhanteras
India’s deep-rooted relationship with gold, symbolizing both wealth and security, is universally recognized. With Indian households holding over 25,000 tonnes of the yellow metal, our nation remains the world’s second-largest consumer of gold, a status especially celebrated during festivals like Diwali and Dhanteras.
Today, as gold prices in India reach record highs of ₹80,070 per 10 grams, many investors are evaluating the most effective ways to invest in this precious metal. Global geopolitical tensions and economic shifts are pushing up prices, offering Indian investors options among physical gold, Gold Exchange Traded Funds (ETFs), and Sovereign Gold Bonds (SGBs), each with distinct benefits and considerations.
Gold ETFs: A Flexible, Liquid Option
Since their introduction in 2007, Gold ETFs have become an accessible
investment option for those wanting exposure to gold without physically holding
it. Gold ETFs eliminate issues related to storage, purity, and theft, while
providing flexibility and transparency through exchange trading. These
qualities have made ETFs increasingly popular among retail and institutional
investors.
According to AMFI, net assets under management for Gold ETFs surged by 59% to ₹38,166.13 crore in Q2 of FY-2024. Inflows have grown by 88% since January, reaching ₹1,232.99 crore in September, underscoring the growing appeal of ETFs. Their transparency and alignment with global prices make them a cost-effective and liquid investment.
For investors seeking short-term flexibility and convenience without the logistics of physical storage, Gold ETFs are a compelling choice.
Introduced in 2015, SGBs were initially designed to provide investors with a
government-backed investment that combined gold price appreciation with a 2.5%
annual interest. They were attractive for long-term investors due to tax-free
capital gains if held until maturity.
However, with gold prices soaring, the government opted to discontinue the SGB
scheme, realizing that rising prices would significantly increase its
redemption costs. To fulfill maturing bonds at market prices, the government
would face substantial outlays, potentially impacting fiscal stability. This
decision comes as the second-year issuance of SGBs nears maturity, with gold
prices nearly doubling over the past eight years. As a
result, the government has announced the premature redemption of 30 tranches issued between 2017 and 2020, set to take place between October 2024 and March 2025.
With SGBs no longer available, investors may find that Gold ETFs offer similar
exposure to gold while providing added flexibility and liquidity.
Despite the popularity of Gold ETFs and the previous appeal of SGBs, physical
gold retains a special place in Indian households. Valued for its tangible
nature, inflation hedge, and as a means of preserving wealth across
generations, physical gold represents both security and legacy. However, owning
physical gold also presents storage and purity challenges, along with risks of
theft, making it less efficient compared to other gold investment options.
With prices projected to rise to ₹2,00,000 per 10 grams in the next five
years, the costs associated with physical gold could soon become prohibitive
for many. This trend has also sparked global conversations on whether a return
to the “gold standard” is viable for stabilizing economic value.
While physical gold holds unmatched sentimental value, Gold ETFs offer practical financial benefits that align with modern investment needs.
As India’s economy continues to evolve, the choice among physical gold, and
Gold ETFs depends on individual goals and timelines. Physical gold remains
essential for traditionalists valuing tangibility, while Gold ETFs
provide flexible, efficient alternatives without storage concerns.
With the recent discontinuation of SGBs, investors may look toward Gold ETFs
for liquidity and market alignment. By balancing cultural values with financial
needs, today’s investors can make informed choices that maximize returns while
managing risks.
Source: https://economictimes.indiatimes.com/