The latest tranche of the Sovereign Gold Bond (SGB) is open for subscription. It opened on September 11 and will be available for purchase till September 15, 2023. The SGB is one of the ways to own gold in its paper form.
Do keep in mind that SGBs are meant solely for the purpose of investment and not consumption. This is because even though you will not own gold in its physical form, by investing in an SGB you can participate in the gold price growth (or even fall for that matter).
Also read: How to buy Sovereign Gold Bonds (SGB) online through SBI, HDFC Bank, PNB, Canara Bank, ICICI Bank
Here is a look at seven watch outs you should know before investing in an SGB.
1. Sovereign gold bonds USP
While physical gold bought from jewellers or banks could come at a premium, of somewhere around 10 percent, the price of SGB is close to the actual gold price. For the current SGB tranch, the nominal value of SGB is calculated as Rs 5,923 per gram. In comparison to the nominal value, the government offers a Rs 50 discount to investors who apply online and pay for their applications using digital ways. For these investors, the gold bond will cost Rs. 5,873 per gram of gold.
Added to this, SGB's taxation is in favour of investors as the gains are exempted on maturity unlike physical gold where gains are subject to tax. Interest on SGBs is taxable under the provisions of the Income Tax Act of 1961. The tax on capital gains deriving from the redemption of SGB by an individual is free. Long-term capital gains deriving from the transfer of the SGB will be eligible for indexation advantages.
Also read: Sovereign Gold Bonds: What are the tax implications?
2. Physical gold's pitfalls
Indians' love for gold is no secret. However, holding hold in its physical form, be it jewellery, coins, and bars, comes with its own concerns like safety, high cost, outdated designs, and making charges. Making charges vary depending on the type of gold jewellery you are buying. This is because every ornament requires different style of cutting and finishing. It also depends on how much fine detailing is required in the design, that is, if it is a man-made or machine-made. Machine-made jewellery usually costs less than man-made ones.
3. Availability of SGBs
SGBs availability is not 'on-tap basis'. Instead, the government will intermittently open a window for the fresh sale of SGBs to investors and the bonds will not be available all year round. The government has issued two new tranches of the Sovereign Gold Bonds (SGB) in collaboration with RBI. According to an RBI press release issued on June 14, 2023, the first tranche was available for subscription from June 19-23 and the second tranche is from September 11-15. Bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices as may be notified and recognized stock exchanges. For those looking to purchase SGBs anytime in between the only way is to buy earlier issues (at market value) which are listed in the secondary market.
4. Money goal has to match the SGB tenure
The tenor of the bond will be for a period of 8 years with an exit option from the fifth year which can be exercised on the interest payment dates. If you are investing in SGB for a specific financial goal, make sure it is at least five years away. Goals such as children's education, marriage or your own retirement, which are at least five years away, may be linked to investment in SGBs.
5. Secondary market transactions
Although one can exit in the secondary market anytime, liquidity and price risk may exist. Secondary market transactions may also result in capital gains or loss.
6. Accumulating process
Units of SGB can be redeemed only after 5 years and that too at half-yearly intervals.
7. Returns of SGBs
SGB returns are market-linked and will depend on gold prices prevalent on maturity after eight years or on premature exit. Rather than owning gold in physical form and not earning anything on it, SGBs mean owning gold and also earning interest on it. The tenor of the Bond will be for a period of 8 years with exit option from 5th year to be exercised on the interest payment dates. The interest on the Gold Bonds will be paid at a fixed rate of 2.50 percent per annum on the nominal value of the bond beginning on the day of issue. The interest shall be paid in half-yearly installments, with the final interest payable along with the principle at maturity.
FAQs
Thus, one can consider SGBs if looking for long-term investments in gold, offering a superior alternative to physical gold and gold ETFs. It gives better returns, zero storage concerns, liquidity, tax benefits, and purity assurance. It is a hassle-free and efficient way to invest in gold.
Is Sovereign gold Bond a good investment? ›
Thus, one can consider SGBs if looking for long-term investments in gold, offering a superior alternative to physical gold and gold ETFs. It gives better returns, zero storage concerns, liquidity, tax benefits, and purity assurance. It is a hassle-free and efficient way to invest in gold.
Which bank is best for sovereign gold bond? ›
Investing in Sovereign Gold Bonds is easily accessible through designated banks such as SBI and HDFC Bank. Interested individuals can apply for these bonds via the respective bank's website under the 'Investment' tab.
Is SGB a one-time investment? ›
SGBs are issued with a maturity period of 8 years. Investors are allowed early redemption/encashment after 5 years. Alternatively, they can sell the bonds on the secondary market if they are listed from the date specified by the RBI.
What is the best way to buy SGB? ›
Investors can buy sovereign gold bonds from any of the following entities:
- Designated post offices.
- The Stock Holding Corporation of India Limited or SHCIL.
- Recognised stock exchanges of India, viz., the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited.
- Scheduled commercial banks -
NRIs and SGBs
A Non-Resident Indian cannot invest in Sovereign Gold Bonds as per the Foreign Exchange Management Act (FEMA), 1999. However, an NRI who has already invested in SGB before achieving his NRI status can hold the bond until its maturity or demand premature redemption.
What are the disadvantages of investing in gold bond? ›
Disadvantages of SGB
- Maturity: Long maturity period of 8 years, which some investors find discouraging. Designed to mitigate gold price volatility and prevent losses. ...
- Capital Loss: Bond value linked to international gold prices. Possibility of capital loss if redemption price is lower than purchase price.
Investing in SGBs provides a hedge against inflation, unlike PPFs or FDs, which have been hit by inflation over the years. Indian investors generally invest in Public Provident Funds (PPF) or fixed deposits (FDs), both known for providing a stable and guaranteed return.
When to buy sovereign gold bonds? ›
Sovereign Gold Bond (SGB) Scheme Calendar of issuance during October 2023 to March 2024
| No | Tranche | Date of Subscription |
|---|
| 1 | 2023-24 Series III | December 18 – December 22, 2023 |
| 2 | 2023-24 Series IV | February 12 – February 16, 2024 |
1)Investors can also buy gold bonds from commercial banks, 2)You can invest in SGB Online through net banking. 3) Through the mobile application of your bank. 4) By visiting a bank branch or designated post office physically.
Capital Loss
Your investment in SGB can result in a capital loss as the bond value is directly linked to the price of gold in the international markets. If the price at which you buy the bond is higher than the price at which you redeem it at maturity, you might end up in a loss.
What happens to SGB after 8 years? ›
What happens after SGB matures in 8 years? The interest and maturity will be credited to the bank account when the SGBs mature after eight years. The investor's bank account will be credited with interest on a semi-annual basis, and the final interest payment will be due together with the principal at maturity.
How to buy sovereign gold bond 2024? ›
Online investors can even buy via net banking or through the mobile application of the bank by navigating to the 'eServices' section and locate the 'Sovereign Gold Bond' option. For those who prefer purchasing physically, SGBs can be purchased through a bank branch or designated post office physically.
Can I sell Sovereign gold bond anytime? ›
Is premature redemption allowed? Though the tenor of the bond is 8 years, early encashment/redemption of the bond is allowed after fifth year from the date of issue on coupon payment dates. The bond will be tradable on Exchanges, if held in demat form. It can also be transferred to any other eligible investor.
Can I sell SGB after 1 year? ›
When to sell SGBs? The Sovereign Gold Bonds have a term period of 8 years. However, investor can pre-mature with RBI after the end of 5 years at interest payment dates.
Is SGB better than gold ETF? ›
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.
Why not to invest in sovereign gold bonds? ›
Capital Loss
Your investment in SGB can result in a capital loss as the bond value is directly linked to the price of gold in the international markets. If the price at which you buy the bond is higher than the price at which you redeem it at maturity, you might end up in a loss.
What is the average return on sovereign gold bonds? ›
How much returns can you expect from the Sovereign Gold Bond schemes?
| SOVEREIGN GOLD BONDS 2.75% FEB 2024 TR-II | SOVEREIGN GOLD BONDS 2.75% SEP 2024 TR-V |
|---|
| Interest Rate | 2.75% | 2.75% |
| Interest Frequency | Semi-annually in August and Feb | Semi Annually in September and March |
| XIRR (At current gold price) | 13.44% | 10.93% |
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Investing in SGBs provides a hedge against inflation, unlike PPFs or FDs, which have been hit by inflation over the years. Investing in SGBs provides a hedge against inflation, unlike PPFs or FDs, which have been hit by inflation over the years.
Is gold bond better than buying gold? ›
Unlike physical gold, SGBs do not carry any risk of theft or robbery for they are a digital form of gold, traded via demat accounts. SGBs provide an annual interest of 2.5% which give it an edge over investing in physical gold. The minimum investment in SGBs is one gram.
