Why ULIP mis-selling has become rampant ?

India’s demand for gold is insatiable and this is evident in the steady rise in gold imports over the years. In the year gone by, India had imported 720 tonnes of gold.

The yellow metal has also delivered healthy returns over the long term and is therefore considered to be a safe asset that provides financial security in these times of crisis.

Gold is also viewed as a hedge against inflation and is inversely correlated to equities. One often notices that when there is high volatility in the financial markets, gold provides stability to the portfolio.

Financial advisors too recommend keeping some exposure to gold as a hedge in a well-diversified portfolio, however more than physical gold, most experts now point at digital gold being a better investment option.

Even in e-gold, there are now many options available including Sovereign Gold Bonds, Gold ETFs, and even Gold Mutual Funds.

But, what’s the difference and which route should you take for your investments?

Well, to curb the demand for physical gold, the government had come up with Sovereign Gold Bonds (SGB) in Union Budget 2015-16.

Sovereign Gold Bonds are government-guaranteed bonds linked to the market price of gold which not only gives a gold-linked return but also a fixed rate of interest (of 2.50%) and also eliminates several risks associated with physical gold. The interest is paid every 6 months. These gold bonds come with a maturity period – or lock-in period – of eight years, with a premature exit only possible after the first five years.

Proceeds from the investment do not attract any capital gains tax liability if held until maturity (8 years)

However, if one is looking for a more liquid option, one can consider Gold ETFs.

Gold ETFs allow you to invest in gold in a dematerialized format, using a Demat account, which can be bought and sold on the stock exchange just like shares. The unit price of any Gold Exchange Traded Fund is typically linked to the price of one gram of 24K gold. These provide returns proportional to the returns on gold and are good options if your investment window is shorter.

However, unlike SGBs, there is no fixed interest income over and above the selling price of gold in case of ETFs. One must remember that gains from ETFs are also taxable. Short-term gains are taxed as per your income tax slab and long-term gains are taxed at 20.6% with indexation benefits.

Gold Mutual Funds are suitable for those who are looking to make regular investments instead of a one-shot investment.

Gold mutual funds are open-ended investments, based on the units provided by the Gold ETFs. Many mutual fund houses closely track the value of gold and have gold-backed mutual funds that you can invest in via SIPs. This makes it very rewarding to invest. Units of gold funds can be redeemed by selling them back to the fund house based on the NAV for the day. However, unlike ETFs, gold MFs may have an exit load, making them more expensive.

Anuj Gupta, Vice President (VP), Commodity and Currency Research at IIFL Securities said, “Sovereign Gold Bonds is a great option for long term investment, however, gold mutual fund and ETFs are good options for short term investments. In ETFs and mutual funds, investors may invest in a staggered way, but in SGB it requires lump sum amount to invest.”

To sum up, experts suggest that gold should be 5-10% of one’s investment portfolio as it can provide stability to the portfolio in uncertain times and one must look at investing via online methods as they offer a low-cost way of taking exposure to gold. Investors do not have to incur costs like making/wastage charges, storage charges (bank locker) and have no risks of impurity or theft.