Hi All,
We have seen a lot of comparisons between various instruments available for investment in Gold and by far we all understand that SGB’s are most practical/beneficial method of investment.
My question is, is there a comparison between investment between Gold SGB vs Gold Futures? I here I am not talking about trading for a short term, I am a long term investor so does it make sense for me to move to Futures?
For Gold Futures we have the big gold, GoldM, Gold Guinea and Gold Petals. These are the two major differences I have understood so far in favor of SGB’s:
- SGB provide extra 2.5% PA as interest.
- SGB are like buy and forget, vs Futures you need to keep rolling over to the next expiry which would mean additional transaction cost.
Some +ve aspects of gold Futures:
- Can use leverage, like for 1 KG investment around 7L is needed instead of 75L, or event in GOLDM, only 70,000 is needed for 100 Gms of gold investment and not 7.5L.
- Can be liquidated more efficiently then SGB as volume is relatively higher in immediate contract.
If someone has SGB’s worth lets say 20L, why should they not move to GOLDM Futures and keep rolling to next expiry?
Biggest factor here to consider is the leverage, I can take out 20L from SGB approx 250GM and invest in equivalent GOLDM 2 Lots and approx 6 lots of GOLDGUINEA for just 1.75L total.
This post is to get more insights from people who have more knowledge on this area and my thought process might be totally absurd and stupid.
what about MTM losses in case gold fell 15% then your mtm will be approx 30% of capital, will you keep extra cash aside to pay for it?
imo it doesnt make much sense to buy anything over sgb becuase of 0%taxes on sgb vs slab rate taxes on futures.
Hi @arpitagrawal294 , each instrument has a diff trade off. Trading in Gold futures, there’s a premium or discount to the spot price of gold. This depends on things like interest rates, demand and supply etc…
If the future price is higher than the spot price, yu are paying a premium to rollover these contracts. This can slowly take away returns in long term.
Makes sense, than you! No point in keeping extra cash when the whole point is to free up money.
And of course, on this amount I should have thought about tax implications.
Oh okay!
I would definitely like to keep the tracking on spot and not rely on demand supply fluctuations.
Thank you Nithin!
don’t get attracted towards Gold Futures as they are Hedging Instruments or some can say a Trading Instrument 
I better recommend you or anyone else to go for SGBs only. If new SGBs aren’t going to be issued by the Government than one can buy them from Secondary Market via RBI portal www.rbiretaildirect.org.in
just stay away from Futures If you really want to build your wealth as an Investor.
It’s not a “can”, it’s a “will”. “This will slowly take away returns in long term.”
The premium is equivalent to paying interest on loan on the amount by which the futures trade is leveraged. If you take a loan, then you have to pay interest whether you make profit or loss. So, the reduced return is a certainty.
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