Gold: SGB vs Physical vs Digital
Gold is not just a metal in India; it's an emotion. It's wealth, status, and security. But buying gold jewelry is often a terrible investment. Let's explore smarter ways to own gold.
Why Invest in Gold?
- Hedge against Inflation: Gold prices usually rise when cost of living rises.
- Crisis Friend: When stock markets crash or wars happen, gold prices go up.
- Diversification: It balances your portfolio.
Recommended Allocation: 5-10% of your total portfolio.
The 3 Ways to Buy Gold
1. Physical Gold (Jewelry/Coins)
The traditional way.
- Pros: You can wear it. Emotional value. Instant liquidity.
- Cons:
- Making Charges: 10-25% waste! (You pay ₹50k for gold + ₹10k making charge. Resale value is only ₹50k).
- Purity Risk: Is it really 24K?
- Storage Risk: Theft worry. Locker charges.
- Tax: 3% GST on buying. Capital gains tax on selling.
2. Digital Gold (Apps like Paytm/PhonePe)
Buying gold in ₹100s on apps.
- Pros: Convenient. Buy for ₹1. No storage worry.
- Cons:
- Spread: Buy price is ~3% higher than Sell price instantly.
- GST: 3% GST applies.
- No Regulation: Not regulated by SEBI or RBI. Risky.
- Verdict: Avoid. It's expensive and unregulated.
3. Sovereign Gold Bonds (SGB) - The King 👑
Government securities denominated in grams of gold.
- Pros:
- Interest: You get 2.5% interest per year (extra cash!).
- Tax-Free: Capital gains are 100% tax-free if held till maturity (8 years).
- Safety: Government guarantee. No theft risk.
- Purity: 100% purity linked to market price.
- No GST/Making Charges: You pay only for gold.
- Cons:
- Lock-in: 8 years (Early exit allowed after 5 years).
- Can't wear it: It's a certificate.
Comparison Table
| Feature | Physical Gold (Jewelry) | Gold ETF / Mutual Fund | Sovereign Gold Bond (SGB) |
|---|---|---|---|
| Purity | Risk exists | 99.5% Guaranteed | 99.9% Guaranteed |
| Making Charges | High (10-25%) | None | None |
| Annual Interest | None | None | 2.5% (Paid to you) |
| Storage Cost | Locker rent | Expense Ratio (~0.5%) | None |
| Tax on Gains | Taxable | Taxable | Tax-Free (at maturity) |
| Liquidity | High | High | Low (8 yr lock-in) |
The Verdict
- For Wearing: Buy Jewelry (Accept the making charge as "fashion cost," not investment).
- For Investment: Buy SGB (Sovereign Gold Bonds). It beats everything else.
- For Short Term (Less than 3 years): Buy Gold ETFs (Exchange Traded Funds).
How to Buy SGB?
RBI issues SGBs in "Tranches" (windows) a few times a year.
- Apply through your Bank (Netbanking) or Broker (Zerodha/Groww).
- Or buy from Secondary Market (Stock Exchange) anytime if you have a Demat account.
7-Day Action Plan
Day 1: Check how much gold you own (Jewelry/Coins). Estimate value.
Day 2: Calculate % of Gold in your Net Worth. Is it >10%? (If yes, stop buying).
Day 3: Check if SGB is open for subscription (Google "SGB tranche dates").
Day 4: If not open, look for "Gold BeES" (Gold ETF) on your broker app.
Day 5: Stop buying "Digital Gold" on payment apps. The spread kills returns.
Day 6: If you plan to buy jewelry for a wedding, buy SGBs now. At maturity, use the money to buy jewelry. You earn 2.5% interest meanwhile!
Day 7: Educate your parents about SGB. They will love the 2.5% interest.
Quiz
Test Your Knowledge
Question 1 of 5
1. Which form of gold gives you extra annual interest?
💡 Final Wisdom: If you want to look rich, buy jewelry. If you want to BE rich, buy SGBs.