Akshaya Tritiya on May 14: Akha Teej alert! Sovereign gold bond, digital gold and ETFs—Check three options before buying physical gold

Akshaya Tritiya is coming and so is the craze for gold. This year Akshaya Tritiya will be celebrated tomorrow, May 14. With the 'festival of gold' only a day away, buying gold must be on everybody's mind. There are many ways one could buy gold these days. Physical gold is an obvious option for those looking forward to buy jewelleries. But those who are planning to buy the yellow metal for the sake of investment, there are three very good options—Sovereign gold bond, digital gold and Exchange-Traded Fund (ETF). With most of the Bullion experts recommending buy on dips strategy for yellow metal in the mid-to-long-term for good return, it is also the right time to add gold in your portfolio. Let's look at these investment instruments and understand which option is better for you. 

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Sovereign Gold Bond

This is issued by the Reserve Bank of India (RBI) and is considered direct substitute to holding gold in physical format. RBI issues this gold in denominations of one gram of gold and in multiples thereof. The bonds will be issued three days after Akshaya Tritiya. Sovereign Gold Bonds Scheme 2021-22 will be issued in six tranches from May 2021 to September 2021. The first tranche of Sovereign Gold Bonds 2021-22 will be open for subscription on May 17, 2021, and bonds will be issued on May 25, said the RBI.  The tenor of the bond will be for 8 years with an exit option after the 5th year. The maximum limit of subscription will be 4 KG for individual, 4 Kg for HUF and 20 Kg for trusts and similar entities per fiscal (April-March).  SGBs offer 2.5 per cent annual interest on initial investment.  These bonds bought in the primary market are also exempt from the capital gains tax if not pulled out before maturity. It will be taxed at 20 per cent in case of premature withdrawal and in case sold on stock exchanges within one year of purchase, the gains considered as long-term capital gains and taxed at 10%.

Digital Gold

You can buy yellow metal in this form from e-wallets like PayTM, Google Pay, Phone Pay, etc. It allows you to buy gold as low as Rs 1 and buyers can also ask for delivery of gold once they accumulate at least 1 gm of gold.  Digital gold, however, attracts 3 per cent GST and is taxed at 20% with indexation benefit when sold after three years. Advantage here is purity and storage as compared to physical gold. Purity of gold varies from 995 (safegold) to 999.9 (MMTC-PAMP) but it is disclosed, and the buyer is charged the price of disclosed purity. Digital Gold is backed by actual physical gold that is kept in bank grade secured vaults.

Gold ETFs

A commodity-based open-ended mutual fund schemes that represent assets both in dematerialised and paper form.  Each unit of these traded funds represents 1 gram of 99.5% pure gold. These are suitable for investors who want to track and reflect the actual price of gold in real time.  It attracts similar taxed to that levied on purchase or selling of physical gold. One can buy gold ETF by opening a demat account. In this case, you don't get physical gold in case of redemption, but monetary value equivalent to gold on the day of withdrawal/selling. Like digital gold, it also does not charge any storage cost.