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Want to choose between buying gold bonds or investing in a bank after selling gold

Date: 01 Dec 2015    Group: Finance and Investments    Category: Investments   

What are the advantages and disadvantages of buying gold bonds? Also in case the gold owned by an individual is sold and the proceeds invested in a fixed deposit of a bank, then a regular interest will be earned. Which of the two options is more beneficial for the individual? Experts: do respond to my query.

Confused whether to buy gold bonds or invest cash? Check out responses from experts on this page.

Author: Venkiteswaran.    02 Dec 2015      Member Level: Diamond     Points : 5  (Rs 5)    Voting Score: 0

Gold kept in our house or in locker without regular use is an idle asset. Presently it does not yield any income or satisfaction of use. In the macro level of the country as a whole, idle gold is a non-productive asset and the country does not get the use of it. The country would have incurred foreign exchange outflow on import of that gold.

So except for the individual hope of possibility of a price hike in future idle gold is not a useful one for current turnover or income generation.

However if we analyse the history of Gold price increase, for the last 10 years the cumulative increase from Dec 2005 to Dec 2015 is 22 percent, which on averaging comes to less than 5 per cent. However if we read the papers we can see that gold is now selling at low price and may be lowest in last six years. Even when the increase was sharp and fast the year on year increase was less than the bank deposit yield or those from real estate investment. Hence it may not be worth keeping idle gold and wait for price rise.

The next is Gold bonds. As of now the return proposed is not that attractive. The new govt schemes of gold monetisation gives less return and it needs melting which is bound to result in reduced value.

So the best alternative is to sell the gold and invest the money properly. If it is invested in banks, the present maximum interest is about 8 per cent and the tax component may be around 3o percent i.e 30 percent of 8 percent i.e it roughly gives slightly more than 5 percent. But the money is available ready for any other better deployment. In doing so, one can avoid the locker rentals, making charges and loss while re selling if it is ornamental gold.

Hence for a normal individual, instead of keeping idle gold it is better to sell and invest money in banks and in well analysed prudently decided good investments.

Author: Ashok Goyal    02 Dec 2015      Member Level: Gold     Points : 3  (Rs 3)    Voting Score: 0

The main purpose of the Gold Bond Scheme is to recycle the idle gold. But major chunk of the Gold in the hands of Indian households is out of undeclared income which is called as black money on which either tax is avoided or which is earned through illegal means. As such I doubt if the Gold Bond Scheme will ever succeed. The investors will have to pay tax on returns and also on capital gains even if the gold is kept in bonds whereas physical gold holders easily avoid the capital gains. Had the government launched the scheme at a time when the Gold Rates were rising from Rs.8000 per 10 gram in 2006 to Rs.33000 per 10 gram in early 2012 then the Government of India would have suffered a big loss and gold bond holders would have been subjected to capital gains tax. There are many limitations in the newly launched Gold Bond Scheme. Had the government come with One Time Voluntarily Declaration of Physical Gold and allowed immunity to bigwigs then Government would have succeeded in bringing out the physical gold with the purpose of recycling the same. I doubt it is beneficial to invest in Gold Bonds. Have you ever seen the rate of Gold Coins being sold by banks and post offices? It is always higher than the rate of physical gold of 24 carats and if one buys gold coins and sells in the open market (as no institutions buys the gold coins at a rate near to selling price of gold coins) he or she is looser. Similarly any investment through government schemes can be Risk Free but it can not yield more than the open market.

Author: Partha Kansabanik    02 Dec 2015      Member Level: Diamond     Points : 3  (Rs 3)    Voting Score: 0

Gold is traditionally used as hedge against inflation. A mature investor can make 10-20% of his total investment in gold for diversification and as a hedge against inflation. As there is issue of security, many investors prefer gold bonds or gold ETF to invest in gold rather than investing in physical gold. The Government of India has recently initiated Gold Monetisation scheme. The basic purpose of the scheme is to utilize physical gold available with people for the development of the nation. The Government is going to provide a nominal interest on this Gold Bond. The Government will return an amount at the time of maturity of this Bond, depending upon the market-price of gold at the time of maturity.

Investment in Bank FD can't provide a return of more than 9% in the current scenario. So, my advice would be NOT to en-cash the entire gold in Bank FDs. If the investor feels necessary, he can keep only a portion of gold investment in Bank FDs. He may consider purchasing Gold Bond with the rest. The Gold Bond would provide safety of his gold as well as mental peace.

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