People who are in their early adulthood would have grown up seeing their parents invest in gold and fixed deposits whenever they thought of saving money for the future to meet various life goals. Naturally, for these young adults of today, similar investments pose an automatic choice post they started their careers in life. The primary objective of investments at this stage of their lives is generally tax savings. In a few years, they look for investment options that they can fall back on in times of need in future. But by then gold prices would have got out of reach for these youngsters with work experience for about 3 to 5 years. This is where fixed deposits can come to their rescue and have been used as the first investment and tax savings tool by many young adults to date.
To ensure that the youngsters and investors, in general, do not miss out on the opportunity to invest in the coveted yellow metal, simply because of its high price; several alternatives to investment in Gold has been introduced in the form of paper gold that has brought investment in gold within reach. These alternatives include Sovereign Gold Bonds, Gold ETFs (Exchange Traded Funds) and Gold Mutual Funds.
However, the most popular risk-free investment tools that have seen a steady increase in demand are the Sovereign Gold Bonds (SGBs) and Fixed Deposits (FDs). Investors have used these tools to suit their varying requirements for years. It is important to understand both these investment tools and their offering before choosing to invest in either of them.
Sovereign Gold Bonds is an alternate investment option for physical gold. They are a government instrument in paper form that tracks gold prices and gives an assured interest rate of 2.5% when the bonds are purchased at the time of issue and held for the full term of 8 years. These bonds are issued periodically in tranches through weekly windows. The 2020-21 Series X tranche is coming up and is from January 11-15, 2021. The date of issuance will be January 19, 2021. The Bonds will be sold through Scheduled Commercial banks (except the SFB or Small Finance Banks as well as Payment Banks), SHCIL or Stock Holding Corporation of India Limited, recognised stock exchanges in India like BSE or Bombay Stock Exchange Limited or NSE, National Stock Exchange of India Limited and designated post offices. The Sovereign Gold Bonds or SGBs would be in denominations of a basic unit of 1 gram with its multiples.
Fixed Deposit is an evergreen investment tool offered by banks and NBFCs (Non-banking Financial Institutions) to individuals. Investors need to put in a lump sum amount of money with the chosen financial institution for a specified period of time per their choice, from the terms offered by the bank/ NBFC. Money is considered to be safe and locked in for the agreed and chosen period. The maturity amount consists of the principal and the interest accrued on the account. If the investor so chooses, he/ she can opt for periodic payouts of the interest amount to his/ her bank account during the tenure of FD to manage monthly expenses as well. Reinvestment of the entire maturity proceeds is also allowed for further capital appreciation. Interest rates offered for various terms are generally better with NBFCs compared to banks. Premature redemptions are allowed but against a penalty, thus not advisable.
Thus whether it is young investors or mature ones, they should consider investing in gold instruments when they are looking for growth and not just income from their investment. Since gold is not productive on its own and its value appreciation depends on extrinsic factors, investors should ideally choose more income-generating instruments like bank deposits among others and keep their investments in gold instruments to less than 10% of their entire portfolios.