Here are Some Points to Consider While Buying Rental Car Insurance
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Here are Some Points to Consider While Buying Rental Car Insurance
Learn key factors to evaluate before purchasing rental car insurance. Understand coverage options, exclusions, and how to choose the right policy for your need. Act Now
Sovereign Gold Bond vs. Gold ETF: A Comprehensive Comparison for Smart Investors
Over the last few years, the concept of digital gold has arrived in a big way. It started off with gold ETFs and then came the highly popular Sovereign Gold Bond scheme. There are also other digital gold holding vehicles like international gold funds, gold futures and digital gold. In this blog, the focus would largely be on understanding the relative merits and demerits of the sovereign gold bond vs gold ETF debate, and which is more suitable and under what circumstances. Also, a comparison of gold ETF vs SGB is provided on parameters like liquidity, flexibility, charges and tax implications.
What are Sovereign Gold Bonds (SGB) all about?
SGBs or Sovereign Gold Bonds have been around in India since Nov-2015 and have been gradually gaining in heft. These SGBs are central government-backed bonds, denominated in grams of gold. The underlying holding in grams of gold is guaranteed by the central government. In addition, these sovereign gold bonds also bear an interest of 2.50% annually on the issue price, which is paid semi-annually to the investor. Investors also get an upfront discount of Rs. 50/- per gram if the payment mode is digital. SGBs are also advantageous as they do not have the hassles like storing gold, making charges, risk of loss etc.
What really stands out about the SGB is the sovereign guarantee and that the returns are pegged to the price of gold. What the government guarantees is the payment of interest at 2.50% per annum and the holding of gold in grams. Considering that gold has generally given positive returns over longer periods of time, it makes investment in SGBs relatively secure and attractive too.
The SGBs can be held either in physical form or in demat form, as part of the demat account.
Gold ETFs (Exchange Traded Funds)
Unlike SGBs that are issued by the central government, gold ETFs are issued by the mutual fund houses registered with SEBI. They are issued in the form of gold units pegged as equivalent to a certain weight in gold expressed in grams. Gold ETFs are typically closed-ended in that once the NFO period is over, the fund does not offer any purchase or sale of units. However, being Exchange Traded Funds, they are mandatorily listed on the stock exchanges and investors wanting to buy or sell gold ETFs can do so using their existing demat account and trading account.
Gold ETFs are very liquid and hence, entry & exit is hardly a problem without any price damage. You can trade in gold ETFs just as you trade in stocks. It must be noted here that gold ETF issuing mutual funds are required to maintain physical gold equivalent to the units sold with a gold custodian bank as a backing.
Sovereign Gold Bond VS Gold ETF
Let's compare the sovereign gold bonds and the gold ETFs on a variety of parameters like returns, risk, flexibility, liquidity, taxation, etc. This sovereign gold bond vs gold ETF comparison will allow investors to make the best choice.
Here are the highlights of the gold ETF vs SGB debate.
1. How do SGBs and Gold ETFs compare in returns?
Remember, both SGBs and gold ETFs are linked to the price of gold. If the price of gold goes up, then the capital appreciation will benefit the SGB and also the gold ETFs. The difference lies in the interest paid. For instance, SGBs pay an additional assured interest of 2.50% per annum, but such assured returns do not exist in gold ETFs.
2. How do SGBs and Gold ETFs compare in risk?
One can argue that since both are backed by gold, there is no asset risk; however, there is a difference.
Even though SGBs do not have physical gold backing, the returns on these bonds are pegged to gold prices. And they have an explicit guarantee by the central government regarding the gold holding and the interest payable. In the case of gold ETFs, there is no explicit guarantee (sovereign or otherwise) but they do have the physical gold with the gold custodian bank.
3. How do SGBs and Gold ETFs compare in taxation?
Gold ETFs are treated as non-equity assets and hence the capital gains, if any, would be treated as short-term gains if held for less than 3 years and taxed at the marginal tax rate applicable. If the gold ETFs are held for more than 3 years, they are long-term capital gains and they attract tax at 20% with the benefit of indexation.
In the case of SGBs, the method of taxation is the same, with just one critical difference. If the SGBs are held till redemption, then any capital gains on the SGBs are fully tax-free in the hands of the investor. However, interest on gold bonds is fully taxable.
4. How do SGBs and Gold ETFs compare in costs?
Sovereign gold bonds don’t have any recurring cost of ownership. Gold ETFs on the other hand, have annual charges, including brokerage and expense ratio ranging from 0.50 – 1.00%. The costing of SGBs is a lot more transparent than Gold ETFs.
5. How do SGBs and Gold ETFs compare in liquidity?
Gold ETFs can be bought and sold in the secondary market using your existing trading and demat account with your stock broker. SGBs can be bought at the new issue period, which can be several times during the fiscal year. Outside that, SGBs are listed on the stock exchange, but the liquidity is limited.
Let’s look at the table below to quickly review the gold ETF vs SGB debate
To sum up the sovereign gold bond vs gold ETF debate, both are digital modes of holding gold and are linked to gold prices.
Among 6 key parameters viz. fixed interest, taxation, liquidity, costing, purity and safety, SGB stands out across all. On the other hand, Gold ETFs are highly liquid and do not have a maximum investment limit, allowing investors to buy as much as they want while in case of SGBs maximum investment limit for individual investors is 4kg in a Financial Year
Eventually, investors need to take a call on the gold ETF vs SGB choice based on their financial goals & risk profile; and returns, risk, liquidity, taxation, & convenience the products have to offer.
Source URL: https://www.sbisecurities.in/blog/sovereign-gold-bond-vs-gold-etf
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Beginners Guide to Invest in Mutual Funds
If you look at the mutual fund inflow numbers or the month on month SIP numbers, it is evident that it is catching on rapidly in India. As much as mutual funds are a transparent and professionally managed product, they also have a problem of choice. With 43 AMCs and more than 1,500 schemes on offer, it is a tough choice. That brings us to the question of how to invest in mutual funds. While those who have been investing in mutual funds are familiar with the process, the broader idea of mutual funds is to bring as many as investors onboard as possible. Hence, the key question is how to start investing in mutual funds. In this segment, we shall cover how to invest in mutual funds for beginners in India and a quick ready reckoner or primer of mutual funds for beginners.
What is mutual fund and how it works
A mutual fund is a SEBI regulated entity where the asset management company (AMC) collects small or big investments from investors, pools it and invests in bonds, equities, and other assets. It issues units against these funds collected. The basic thing about investing in mutual funds for beginners is the unique edge of mutual funds. They combine transparency, professional management, and diversification to maximize returns for a given level of risk. Mutual funds are also flexible, such that entry and exit is very easy. Even a person with a surplus of Rs500 per month can invest in mutual funds through lumpsum or SIPs. Mutual funds typically are funds held in trust and managed by the AMC. The trustees act as conscience keepers of investor interest.
Things to consider before investing in mutual funds for beginners
Mutual funds investment plans for beginners have to be a logical process which starts with the goals and ends with continuous monitoring. Here we look at 8 pre-requisites that tell us how to invest in mutual funds for beginners.
Start with a goal in mind. Write down goals like retirement, child’s education, home loan margin, foreign holiday etc and estimate the amount needed for each goal. That is where your planning for mutual fund investing begins.
The next step is to choose the type of mutual fund. Here, opt for equity funds for long term goals, debt fund for medium term goals and liquid funds for short term goals. Seek help of an advisor for clarity.
Now you must ask, which mutual fund is best to invest? You start the short list based on past performance and then zero in based on your risk appetite.
Make it a point to diversify. Based on your goals, decide the mix between equity funds, debt funds and liquid funds.
Invest via systematic investment plans (SIPs) or lumpsum as per your pocket and funds availability.
Now you come to the implementation part. If you have shortlisted SBI MF, then ask- How to invest in SBI Mutual Fund? Obviously, it has to begin with the know-your-client (KYC) formalities, which is a one-time exercise.
Register for a SIP with SBI Securities and get a unique folio number allotted to you; the reference for all future transactions.
You may not be able to do all these steps on your own, especially if you are a beginner. Seek professional help of a financial advisor. They can handhold you through the entire process from goal planning to monitoring.
Your task does not end with the investment. It has to be monitored on a regular basis. That is why it is essential to get the financial advisory buy-in early to make your mutual fund investing journey smooth and productive.
How to invest in mutual funds?
Today it is possible to do the entire mutual fund investment process online, once your KYC is done. You still have the option of making a physical application and handing over a cheque at the AMC office. However, that is increasingly becoming outdated. Today the question is about how to invest in mutual funds online and that’s what we will dwell upon here.
The first method is to create an account and you will be allotted a folio number. You can submit the form online once KYC is done. Payment and SIP mandate can be done online with your net banking linkage. You can also do it through the mobile app.
The second method is to use the services of distributors like us, SBI Securities that offer choices across AMCs and also acts as one point contact for all your queries
Costs of investing in mutual funds
There are several costs to investing in mutual funds
Total Expense Ratio (TER) is the proportional expense ratio of the fund that is charged to your NAV each day. You can reduce this cost by opting for Direct Plan.
If you go through an advisor, there could be a one-time transaction charge or advisory charge, and this is permitted by SEBI
Transactions in equity funds and equity hybrid funds are subject to securities transaction tax (STT) at 0.001% of value. This is not applicable to debt funds
In addition, any purchase of equity or debt mutual fund is subject to stamp duty at 0.005%
Apart from these costs, there is also an exit load in select cases and this is subjected to a minimum holding period.
That is where your journey begins!
Source: https://www.sbisecurities.in/blog/mutual-fund-investment-for-beginners
Beginners Guide to Invest in Mutual Funds
Mutual funds combine the power of professional management with transparency and choice. The basic thing about investing in mutual funds for beginners is the unique edge of mutual funds.Above all, the process is simple. Read more..
What is Equity Investment: Meaning, Types and How to Start
WHAT IS EQUITY INVESTING AND WHY IS IT ESSENTIAL?
Quite often it is exciting to hear stories of how certain stocks in India have multiplied manifold over the last 10-15 years. It is also interesting to see how global and Indian investors have made their fortunes in the equity markets.
Before we get into equity investment, there is an important aspect of risk-return trade-off that we must understand. Compared to bonds and FDs, equity investment is riskier and more volatile. But equities also have the potential for higher returns. The BSE Sensex, which represents 30 of the most liquid stocks on the BSE, has grown from 100 to 66,000 in the last 44 years. That is compounded annual returns of 15.9% each year over the last 44 years. It may not have happened each year, but if you had stuck on, you would have made a lot of profits. That is the core of long term investment in equities.
As the legendary mathematician, Euclid told King Ptolemy, “Your Highness, there is no royal route to geometry.” Similarly, there is no royal route to equity investing. To invest in equity calls for planning, analysis, and the willingness to stay put for the long term.
First things first: What is equity?
Equity is the risk capital for any business. When we buy equity or shares or stocks (they all mean the same), we become part owners of the company. It may be small, but it is still ownership. Returns in equity come from dividends distributed by the company and capital gains when the stock price goes above the purchase price. So, equity is ownership, and as the owner, the equity shareholder has potential to earn higher returns with a higher risk.
That brings us to the next practical question, how to invest in equity? For investing in equity in India, need to open a trading account with a broker and a demat account. Remember, trading account is for transactions and demat account is for holding the shares. Both these accounts are mandatory, as per SEBI regulations. And thanks to digital India, understanding the process of how to open demat account and trading account has become a lot quicker and simpler these days.
Types of equity investment
If you thought that opening a trading and demat account and buying shares was the only way to invest in equities, think again. Here are some other ways of participating in different types of equity shares, apart from direct investing.
A very popular way of investing in equities is the mutual funds route. You can invest in lumpsum or even monthly SIPs.
You can invest in preference shares of a company, which is between a pure equity share and a bond.
It is possible to take on higher risk and invest in private equity (PE), where you actually invest in start-ups.
You can also buy equities via index investing; through index funds and index ETFs (exchange traded funds) mirroring the market as a whole.
Why to invest in equities?
When you decide to invest in equities, your close friends and relatives may caution you about equities being risky. They are correct, to an extent. Equities entail higher risk, but do you know what is the biggest risk? It is not taking enough risk when you can afford it. It is looking beyond the risk of investing in share market.
If at the age of 25, you put all your money in bank deposits, your money may be safe, but it will yield nothing after inflation. Equities, not only beat inflation, but also create wealth in the long term. For example, by putting Rs. 5,000 a month in an equity fund giving 14% a year for 25 years, you end up with Rs. 1.36 crore on an investment of Rs. 15 lakhs. That is the power of sustained long-term investment in equities.
Key benefits of investing in equity shares
How do investors benefit by investing in equity shares? Here is a sampler.
Equities are the most reliable asset class to create wealth over 8-10 years and above.
A portfolio of 8-10 stocks can diversify risk. Alternatively, you may opt for an equity mutual fund.
Transfer of shares is simple and can be done by giving instructions online.
You can monitor the portfolio value live on your trading platform 24X7.
Equities are taxed lower compared to FDs and bonds.
How to start investing in equities?
The first step is to understand the risk and return in equities. Once you are mentally prepared for equities, the next step is to open a trading account and demat account with a broker and activate online trading.
Once you fund your trading account, you are all set to invest in equities. Don’t get carried away by tips and rumours on multi-baggers. Rely on solid research to identify quality stocks, monitor these stocks, and stick to them for the long haul. Equities manage risk and returns much better in the long run.
Risks of stock market investing
Stock market or equity investing is more volatile and unpredictable in the short term, but more consistent over the long term. Secondly, buy quality stocks or rely on the power of equity mutual funds. Thirdly, be patient with equities. Don’t expect miracles to happen. If you want instant gratification, stock market is not the place to be. Lastly, factors outside your control can often hit equities. You may have little control over what is happening in Russia or Israel. The best way to manage the risk of investing in share market is to diversify your portfolio.
Equity is not a luxury but a necessity if you want to create wealth in the long run. As Warren Buffett summed it up in his 1987 letter to shareholders: “In the short run, stock market is like voting machine, but in the long run it works like a weighing machine.”
Source: https://www.sbisecurities.in/blog/all-about-equity-investment
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