Physical gold, Bonds, ETFs: A quick comparison and which is best to invest

Gold investment is a traditional form of investment and is considered as one of the lowest-risk investment options. It offers liquidity in times of emergencies, besides it has status symbol. For ages, the yellow metal has served as a hedge against inflation. If investment is done wisely in gold, it can help in averting risk of loss, beat inflation and provide a good corpus during uncertain times.

In India, gold is also one of the most exported metals and wealth planners suggest that the metal should be a part of an investor’s portfolio. In long-term perspective, investment in gold gives a better return than any traditional form of investment options like FDs and RDs. There are multiple options available to invest in gold. Apart from buying physical gold which is still popular in India, investors have options like Sovereign Gold Bonds and exchange-traded funds (ETFs) or mutual funds.

Sovereign Gold Bonds, announced by the government in Union Budget 2015-16, are government-guaranteed bonds linked to the market price of gold. These bonds give a gold-linked return and also a fixed rate of interest of 2.50 per cent annually which is paid twice a year. SGBs come with a maturity period of eight years. However, an individual can exit after five years.

Gold ETFs are funds that are traded on bourses just like any company’s stock. When an investor purchases one unit or more, it appears into his/her demat account.

Saurabh Khandelwal, owner of Dhanvi Diamond said that from an investment point of view, all three physical gold, gold bond or gold ETF are moreover similar. "But investment in ETFs over buying physical gold serves the purpose better because there you get to see more liquidity and money is more concentrated," he said, adding that investment in gold should always be viewed as a long-term outlook.

Asif Iqbal, head-research, Escort Securities, said that a layman should buy GOLD ETF as SIP so that one can average the price. Also, Gold ETF investment is hassle free, easy to invest and there is no carry cost. Besides, there is no risk of impurity.

Investment in non-physical gold is gaining popularity. Here, investors are not required to pay labour charge. When investors buy physical gold, they have to pay the labour charge and also bear the risk of storage. Therefore, investing in bonds and ETFs are cheaper and offer more return that possessing physical gold. Physical gold, however, is still most popular form of investment because it has aspects of luxury and fashion. Gold bonds or ETFs, however, do not offer these.

(Disclaimer: This article is only for information purpose. Readers/Investors are advised to to seek experts' advise before making any invement)