Sovereign Gold Bonds vs Physical Gold

When you want to purchase Gold, there are various options:

  1. Purchase as Physical Gold (As ornaments or as coins / bar)
  2. Purchase through Gold Funds or Gold ETFs through Mutual Funds
  3. Purchase as Sovereign Gold Bonds as issued by Govt. Of India through RBI

The best option out of the three would be to go through the Sovereign Gold Bonds route owing to the below reasons: One should hold a DEMAT account to facilitate this purchase.

Physical-vs-Sovereign

Purchase of Physical Gold also makes our country to import more gold (which in turns causes fiscal deficit) & keeping it idle at one’s home is not of any use either. Hence, if one decides to purchase gold – it is better he considers Sovereign Gold Bonds as issued by RBI rather than physical gold…

Gold Prices on Diwali

Festive season brings with it more joy & happiness – people get together for celebrations, exchange sweets, burst crackers and more importantly they also tend to buy among many other things – GOLD. Gold is always considered to be an auspicious investment during these times as it is believed to bring prosperity & wealth.

But how well Gold has fared in terms of returns over the last few years? Gold is a good instrument as an hedge against inflation as it tend to give return at par with inflation rate. For instance in the last 13 years (since 2005), if you had purchased Gold on the Diwali day, you would have got an average annualized return of 7%. Inflation during the same period was around 6.7%. When you compare GOLD as an investment option with Equities, during the same period of 13 years, NIFTY has delivered around 12% CAGR.  

Gold-Prices
Gold Prices on Diwali Day since 2005 – Source ET