Gold prices hit an alltime high recently in the domestic market with the continuous contract of futures of the yellow metal on the MCX touched a high of ₹60,455 on March 20, reported Business Line.
It closed at ₹59,716 on Monday. In the domestic market, yeartodate (CY23), gold has increased 8.5 per cent, whereas in dollar terms, it appreciated nearly 9 per cent.
Investors who had exposure to gold reaped benefits as the precious metal gained 15 per cent in rupee terms even as it could only appreciate by nearly 2 per cent versus the dollar in FY23.
Recent amendments in the Finance Bill, 2023, have rendered gold funds unattractive compared to sovereign gold bonds (SGBs), which enjoy capital gains tax exemption on the returns.
The latest redemptions reveal that investments in GBs fetched higher returns than gold ETFs.
Last month, the Reserve Bank of India (RBI) opened the window for premature redemption of three series of SGBs. Each returned over 12 per cent on the respective redemption date (refer table for data) and outperformed ETFs in the corresponding period.
The return on SGB 2016II, for instance, whose redemption date was March 29, was 12.8 per cent (XIRR including interest paid).
SGB is a better option for investors as it has delivered better returns and the additional assured 2.5 per cent interest paid is an icing on the cake, said Naveen Mathur, Director (Commodities & Currencies), Anand Rathi Share and Stock Brokers.
The capital gains are exempt from tax if investors redeem via the window opened by the RBI after the lockin of five years.
Apart from the interest, which no other goldrelated investment offers, another important advantage is safety as they are backed by the government, and it can be held in demat form.
Ajay Kumar, Director, Kedia Stocks and Commodities, said investment gold demand will shift to SGB as the outlook for gold looks bright given the global economic crisis. Deepak Jasani, Head of Retail Research, HDFC Securities said decent liquidity, better alignment to gold prices are key reasons why it stood out against SGB.