This Diwali, if you are thinking of investing in gold, remember that you don't have to buy it in physical form. There are some options to buy virtual gold that will not only enable you to make a profit on gold but also save you from the worry of its safety and storage.

On October 27, the price of 24-carat gold was ₹7,976 per gram and 22-carat gold was ₹7,313 per gram (indicative price). For more details, you can check the latest gold prices here.

Here we share some key details about Sovereign Gold Bonds (SGB) and Gold ETF so that you can decide which financial instrument deserves your money.

Sovereign Gold Bond (SGB)

Sovereign Gold Bonds (SGB) are government securities denominated in grams of gold. They are seen as a replacement for physical gold. Investors have to pay the issue price in cash and the bond will be redeemed in cash on maturity. This bond is issued by the Reserve Bank of India (RBI) on behalf of the Government of India.

The amount of gold paid by the investor is safe, as he receives the market value at the time of redemption/premature redemption. These are considered better than physical gold as the risks and costs of storage are eliminated.

Investors are assured of the market value of gold at the time of maturity and periodic interest. SGB is free from issues such as making charges and purity as in the case of gold in the form of jewellery.

The bonds are held in the books of RBI or in demat form, eliminating the risk of loss of scrip etc. One can buy these bonds from issuing banks, SHCIL offices, designated post offices or agents. Each application must be accompanied by a PAN number and an investor can buy up to 4 kg of gold every year

Gold ETF

Gold ETF is an exchange-traded fund (ETF) that aims to track the price of domestic physical gold. They are passive investing instruments that are based on gold prices and invest in gold bullion. Gold ETFs are units representing physical gold which can be in paper or dematerialised form.

One gold ETF unit is equal to 1 gram of gold and contains very high purity physical gold. Gold ETFs combine the simplicity of stock investing and the ease of gold investing.

Gold ETFs are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd (BSE) like the stocks of any company. Buying gold ETFs means you are buying gold in electronic form. You can buy and sell gold ETFs in the same way as you trade stocks.

Frequently Asked Questions About Virtual Gold:

Who should invest in Gold ETFs?

Gold ETFs are considered good for investors who want to earn profits on gold but are still not willing to invest in the physical form due to storage hassles or doubts related to purity and want to get tax benefits. Also, there is no premium or making charge, so investors can save money if their investment is quite large.

How can you sell Gold ETFs?

Gold ETFs can be sold on the stock exchange through a broker using a demat account and trading account.

How can retail investors apply for SGBs?

Retail investors can apply for each new tranche of SGBs through the Retail Direct portal.

Can you get cash anytime in exchange for the bond? Is premature redemption allowed?

Although the bond has a tenure of 8 years, encashment is allowed only after the fifth year from the date of issue on coupon payment dates. The bond will be tradable on NSD-OM. It can be transferred to another eligible investor.

Is there any risk in investing in SGB?

There may be a risk of capital loss if the market price of gold falls. However, the investor does not incur a loss in terms of the units of gold he has paid for.