India Markets closed

Planning to buy gold on Akshay Tritiya? Pure gold or Sovereign Gold Bond, which option is better?

Amitava Chakrabarty
gold, gold coins, gold jewellery, gold ornament, physical gold, paper gold, Sovereign Gold Bond, SGB, Akshay Tritiya, GST on gold, making charges, bank locker, FD, locker charges, gold insurance, interest on Sovereign Gold Bond, Sovereign guarantee

On Akshay Tritiya, people tend to buy gold as it is believed that acquiring gold on this auspicious occasion brings endless fortune. Moreover, with gold prices hovering near 4-month low and Akshay Tritiya just five days away on May 7, 2019, the World Gold Council (WGC) expects that demand of the precious yellow metal gold in India could lift higher in the June quarter compared to the same period a year ago as there are also a number of auspicious days for weddings during the period.

Now, the question is, whether to go for physical gold like gold coins, jewellery etc or paper gold like Sovereign Gold Bond (SGB)? Let’s compare the pros and cons of having gold in both the forms.

Touch and feel

Most Indians, especially women, prefer physical gold as they touch and feel the metal and even wear the ornaments. On the contrary, paper gold can’t give the satisfaction of acquiring the precious metal as it may be just a paper or even in dematarialised form having intrinsic value of the gold.

Cost of acquisition

To buy jewellery made of imported gold, apart from making charges, you have to pay 10 per cent GST on import price, 3 per cent GST on value of gold in jewellery and 5 per cent GST on the making charges. However, to buy SGB directly, you needn’t pay any tax.

Holding risk

There are risks of losing physical gold due to theft or burglary, while there is no suck risks on SGB. Moreover, SGBs carry Sovereign guarantee of the government of India, so are you will get the prevailing gold prices at the time of redemption.

Holding cost

As keeping physical gold at home has some risk, you may have to hire a bank locker to keep it safely, which requires monthly locker charges as well as some lump sum money for fixed deposit (FD), as no bank would otherwise lend a locker to you. In addition, you may also insure your gold items to cover the risk of loss in locker break, theft at home and while wearing the ornaments. However, there is not only any such requirement and cost involved with SGB, but the government pays 2.5 per cent annual interest on the value of SGB you hold.

Resale value

While reselling gold items, you will lose the manufacturing charges, but in case of SGB, you will get the full value of intrinsic quantity of gold at the prevailing market rate.

So, apart from emotion and belief, buying and holding SGB is more convenient and beneficial than that of physical gold. However, we have to wait till the RBI announces the price and tenure of direct SGB sale, else, you may buy it through an exchange.