India is one of the biggest consumers of gold in the world. People invest in gold in different forms. There are two kinds of gold investors in the market, the one who invests in physical gold and the other who invests in ‘paper gold’ or gold funds. To encourage people, the government recently launched the Sovereign Gold Bond schemes. This scheme allows the investor to invest in gold by putting their money in a bond where the underlying asset is gold. Such bonds will track the price of gold for a period of over 8 months. This is a much better option for those who do not wish to invest in physical gold. There are several reasons as to why a Sovereign Gold Bond is a better investment scheme. In this article, we will be discussing the three main reasons that make this scheme a better investment option.
Save on Capital Gains Tax
Finance Minister Arun Jaitley proposed to exempt gold bonds from Capital Gains Tax at the time of redemption when he made his budget 2016 speech.Any investor who has invested in the Sovereign Gold Bond scheme does not have to pay capital gain taxes on the profit made through the bond. But long term capital gains that arise from the sale or transfer of Sovereign Gold Bond scheme will definitely attract capital gains tax at 20% after all the indexation benefits.
Earn more than Capital Gain
When it comes to gold investments, gold bond has an advantage over physical gold and Gold Exchange Trade Funds as it not only offers the investor capital appreciation but also an interest payment. The interest earned on the gold bond solely depends on the corresponding value of gold in Indian currency. However, it is to be noted that this interest is taxable and no tax is deducted at source.
Fund charges is always applicable when you are investing in Gold ETFs or Gold Mutual Funds but this is not the case with Gold Bonds. The investor also does not have to worry about storing the physical gold or paying for safety lockers when investing in gold bonds.