Have you ever been daunted with a thought of an easy and friendly financial investment that would gleam as bright as gold! That would offer a hassle-free government backing and makes you earn interest?! Overwhelming, isn’t it? Yes, it’s the Sovereign Gold Bonds, a.k.a. SGBs – with which your wealth can shine even in uncertain times.
What are SGBs?
Sovereign Gold Bonds, also known as SGBs, are securities issued by the Reserve Bank of India on behalf of the Government of India that allows you to purchase gold on paper. In simple terms, these bonds are a substitute to holding physical gold. Easily, you can possess gold in kilograms whilst not hold the actual metal in your hands. Investors are to buy in cash, and the bonds would be redeemed in cash upon maturity.
All that You Need to Know about SGBs:
- SGBs may be held by resident individuals, HUFs (Hindu Undivided Family), Trusts, Universities and Charitable Institutions.
- The minimum investment limit is 1 gm, while the maximum investment limit for Individuals and HUFs is 4 kg; and 20 kg for Trusts per financial year. In case of joint holding, the investment limit of 4 Kg will be applied to the first applicant only.
- The SGBs have a maturity period of 8 years. However, the investors have an option to redeem their investment after the 5th The bonds shall be redeemed at the prevailing gold prices at the time of redemption.
- Price of SGB will be fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity (24 carat), published by the India Bullion and Jewelers Association Limited.
- SGBs can even be held in Demat Form.
- Investors get guaranteed 2.5% assured interest per annum. The interest is payable semi-annually on the nominal value.
- There is a risk of loss if the market price of gold falls below its cost price. However, the RBI assures that the investor will never lose in terms of the quantity of gold that was allotted to them.
Why to Choose SGBs over Physical Gold?
Here are some key reasons why one should choose SGBs over Physical Gold:
- Get the Same Amount of Gold at a Lower Price:
The price of Gold is fixed and usually the same for all. But when you purchase physical gold, you pay additional making charges over and above the gold price. However, this is not the case when you purchase SGBs as they attract no making charges. Also, while purchasing physical gold, you need to pay GST. Whereas, SGBs are exempt from GST.
Thus, the total price at which you buy the SGBs is lower than the physical gold ornaments. - Earn Fixed Interest Over and Above the Non-Taxable Appreciating Gold Price:
When you purchase physical gold, you earn when the gold appreciates whereas through SGBs you earn in 2 different ways – One being the appreciation of gold itself and second is the fixed interest rate you earn during the tenure of holding them.
Also, SGBs are exempted from capital gains tax if they are held till maturity. This is another advantage over physical gold, where investors have to pay capital gains tax if they sell it after three years. It is important to note that the interest earned shall be taxable. - Rid Yourself of Gold Storage Woes
If you purchase gold jewelry, you end up worrying about its safekeeping. You may even have to pay for storage in a bank locker. With this type of bond, the risks and costs of storage are eliminated. In fact, if you misplace your SGB documents, you can simply reach out to RBI and request a copy. - Receive a Sovereign Guarantee
Since the RBI Issues the SGBs on behalf of the Government of India, there is a surety that you will get your dues back without delay on maturity. The sovereign guarantee makes an SGB one of the safest ways to invest in gold. - Collateral for loans
The paper gold bonds can double as collateral. You can use sovereign gold bonds as collateral to receive loans from banks like you take out a gold loan.
Diversifying your investments is the key to financial success. Sovereign Gold Bonds a.k.a. SGBs, with their tax benefits and safety are an interesting way of investment. As we look into the advantage of SGBs and the risk associated with them, you can simply decide whether to do the SGB investments or not. At the same time, it is advisable that investors should consider their own financial goals, risk appetite, investment horizon, and accordingly make an informed decision.
