Your Questions Answered: What is the difference between SGBs and gold mutual funds?

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Padmanabhan Iyengar, Coimbatore, Tamil Nadu In the dynamic landscape of the Indian securities market, gold has long held its position as a coveted asset, offering a hedge against inflation and economic uncertainty. However, when it comes to investing in gold, investors often face a dilemma between two popular options: gold mutual funds and sovereign gold bonds. Understanding the nuances of each instrument is crucial for making an informed decision that aligns with one's investment goals and risk tolerance.

Gold mutual funds and sovereign gold bonds differ fundamentally in their operational structure. Gold mutual funds invest in physical gold or gold-related securities, such as gold ETFs. The fund manager actively manages the portfolio, aiming to capture the price movements of gold.

In contrast, SGBs are debt securities issued by the Reserve Bank of India (RBI) on behalf of the Government of India. The value of these bonds is directly linked to the price of gold, additionally, investors receive a fixed interest rate of 2.5% per annum. Gold mutual funds are investment instruments that pool funds from multiple investors to purchase gold bullion or gold-related securities.

These funds track the price of gold, offering investors exposure to the yellow metal without the hassle of physical storage and security concerns. Investment horizon: Gold mutual funds typically have a flexible investment horizon, allowing investors to enter and exit the fund at their convenience. Returns: Returns are primarily linked to the performance of gold prices.