Indian loves for gold are well known. We adore them more than any other country in the world. India is the biggest consumer of gold. This affection for the gold is rooted in the Indian tradition, mostly because of the high preference of gold in religious and cultural practices. It is considered to be the most auspicious metal. They have a special festival for buying gold i.e. Akshaya Tritiya. There is another reason too. India as a country is conspicuously under-banked. More than one-third of Indians don’t have bank accounts. This is another reason why Indians living in un-banked pockets put their money in gold. High liquidity and inflation-beating capacity are the top selling point of the gold. An investor looks for three important criteria i.e. Safety, liquidity and return before making any investment. Gold fits in the first two criteria convincingly, but it doesn’t do badly at the last one either. There are mainly two reasons why one should invest in gold.
- Hedge against Inflation:
In any economy, when inflation rises, the value of the currency goes down. This lower down the purchasing power capacity of any investor or a consumer. That’s the reason, people tend to invest in gold, as the value of the gold goes up, when the value of the currency goes down. Gold becomes a perfect hedge against inflation.
- Inverse relation to an equity investment:
Historically, it has been seen that equity has an inverse relationship to the stock. If the equity market performs badly, then there is a high probability gold will perform well. It acts as a buffer to the overall volatility of your portfolio
( Comparison of Gold vs Nifty Historical Return chart )
There are mainly two types of investors in the gold market, one who invests in physical gold and others who invest in paper gold or gold fund. Recently, the government has launched a new scheme “Sovereign Gold Bond ‘’ to encourage investors to invest in gold. SGBs are mainly government securities denominated in grams of gold. They are substitutes for holding physical gold. An investor just must pay the issue price in cash and the bonds will be redeemed in cash on maturity. It is issued by the Reserve Bank on behalf of the Government of India.
But few people know about the procedure of investing in sovereign gold bonds. In order to invest in the sovereign gold bond, an investor has to follow these simple procedures:
- Anyone can apply for the bond through SEBI authorized trading member and financial advisors of the National stock exchange of India Limited and other channels specified by RBI.
- There are two modes of investment, one is physical and the other is through the demat account.
- The physical mode is an offline mode, while the other is an online mode.
- Open an online trading account with a stock broker.
- Further, log into your online trading portal using your login ID and password.
- Choose the Gold bond you want to invest in.
- Place the buy order for the purchase of a Gold bond.
- Units are credited to your demat account on Trade day +2nd day.
There are various benefits of investing in the sovereign gold bond compared to traditional physical gold. The gold bought from jewelers or banks could come at a premium, of around 10 percent, the price of SGB is close to the actual gold price. Apart from that, the SGB’s taxation is in favor of investors as the gains are exempted on maturity unlike physical gold where gains are exempted on maturity, unlike physical gold where gains are subject to tax. One can also use it as collateral for loans. Apart from that, all bonds offer a small interest in the range of 2.5%-2.75%.
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*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.