Gold has always been a reliable investment, valued for its ability to grow wealth and provide financial security. It’s not just a shiny metal but a smart choice for anyone looking to protect their money in the long term. However, the question remains—how do you invest in gold? Should you go for physical gold, Gold ETFs (Exchange Traded Funds), or Sovereign Gold Bonds (SGBs)? Let’s break down the differences and see which option offers the best returns for your investment.
What’s the Difference Between Physical Gold, Gold ETF, and SGB?
Before diving into the numbers, it’s important to understand the basics of each gold investment type.
1. Physical Gold
Physical gold refers to the actual gold you can touch, like jewelry, coins, bars, or biscuits. It’s a popular choice because it’s tangible and can be easily liquidated anywhere in the world. However, there are some downsides: You may need to pay extra for making charges if it’s jewelry, and it also needs to be stored securely. Additionally, capital gains tax applies depending on how long you hold it, and if you buy more than Rs 30 lakh worth, wealth tax kicks in.
2. Gold ETF
Gold ETFs work much like regular mutual funds but are traded on the stock exchange, tracking the price of high-purity gold. Each ETF unit typically represents 1 gram of gold, and you can buy or sell them easily through a demat account. They offer an easy way to invest in gold without needing physical possession, but their price fluctuates throughout the trading day, and they can only be traded during market hours.
3. Sovereign Gold Bonds (SGB)
SGBs are government-backed securities issued by the Reserve Bank of India (RBI). They’re denominated in grams of gold and not only mirror the price of physical gold but also offer an additional 2.50% interest annually. SGBs are issued for a term of 8 years, with an exit option after 5 years, and can be traded like ETFs after that period. The best part is you don’t have to worry about theft or storage!
How Have Rs 7 Lakh and Rs 14 Lakh Investments Performed Over 6 Years?
Now that you know the difference between physical gold, Gold ETFs, and SGBs, let’s dive into how investments of Rs 7 lakh and Rs 14 lakh in each option have grown over the last 6 years.
Physical Gold Returns
Physical gold is the most traditional way to invest. If you had invested Rs 7 lakh in physical gold on December 26, 2017, you could have purchased 265.17 grams. At today’s price (October 1, 2024) of Rs 7,754 per gram, your investment would now be worth Rs 20,58,000. Likewise, a Rs 14 lakh investment (530.34 grams) would be worth Rs 41,16,000.
Gold ETF Returns
If you’d invested Rs 7 lakh in the top-performing Gold ETF (LIC Gold ETF) on December 26, 2017, your investment would have grown to Rs 17,64,711. For Rs 14 lakh, the amount would have increased to Rs 35,29,422. Gold ETFs offer the benefit of easy buying and selling but haven’t performed quite as well as physical gold in this case.
SGB Returns
Sovereign Gold Bonds have been a fantastic investment option as they offer both price appreciation and annual interest. A Rs 7 lakh investment in the top-performing SGB (Sovereign Gold Bond Scheme 2017-18 – Series XIII) has now grown to Rs 12,53,942.77. A Rs 14 lakh investment has increased to Rs 25,07,885.55. While the returns aren’t as high as physical gold or Gold ETFs, SGBs offer the added advantage of a guaranteed 2.50% annual interest, which provides a steady income stream in addition to price appreciation.
Which Investment Option Offers the Best Return?
Now that we’ve seen the numbers, let’s sum up which gold investment has delivered the best results:
- Physical Gold has offered the highest returns over the past six years, with an investment of Rs 7 lakh growing to Rs 20,58,000 and Rs 14 lakh swelling to Rs 41,16,000.
- Gold ETFs come in second, growing a Rs 7 lakh investment to Rs 17,64,711 and Rs 14 lakh to Rs 35,29,422.
- SGBs have grown Rs 7 lakh to Rs 12,53,942 and Rs 14 lakh to Rs 25,07,885. While this is the lowest return among the three, remember that you also earn a fixed 2.50% interest annually with SGBs, making it a safer and more predictable investment in the long term.
Key Takeaways: What Should You Choose?
If you’re looking for the highest returns, physical gold has been the top performer over the past six years. However, it does come with its own set of challenges like safe storage and added costs.
Gold ETFs are a great option if you don’t want the hassle of holding physical gold and are comfortable with trading on the stock exchange. They’ve provided solid returns, though not as high as physical gold in this period.
SGBs offer the lowest risk. Though they haven’t provided the highest returns, the guaranteed 2.50% annual interest adds value, especially if you’re investing for the long term.
Conclusion: Make Your Gold Investment Work for You!
Gold continues to be a smart investment, whether you’re going for physical gold, Gold ETFs, or SGBs. Each has its benefits, and your choice should depend on your personal preferences and financial goals.
Want high returns? Physical gold may be your best bet. Looking for convenience and liquidity? Gold ETFs are a great choice. And if you’re seeking a low-risk, interest-earning investment backed by the government, SGBs are hard to beat.
No matter which option you choose, investing in gold can help secure your financial future. So, why wait? Start investing today!