Bonds issued by Reserve Bank of India | Returns linked with market price of gold | Additional 2.5% interest p.a. (No TDS applicable) | Bonds tradable on exchange Invest Now

The reverence for gold goes beyond just its market value for Indians. Gold has been bought as an investment for generations now. Buying gold in its physical form has a few downsides such as wastage and making charges. A good way to combat this is to invest in Sovereign Gold Bonds (SGBs). They are government securities issued by the Reserve Bank of India. With an SGB, you can buy gold in a ‘certificate’ format. 

Why Should You Invest in Sovereign Gold Bonds (SGBs)?

As an investor, you might have the question - ‘Is Sovereign Gold Bond a good investment?’.  To answer this question, let us look at why you should invest in SGBs.

  • No Storage Issues

Buying gold in its physical form for investment is a good idea but comes with disadvantages, such as storage space and security. Sometimes for security reasons, you might rent locker space in a bank for which you might have to pay monthly charges. Whereas with Sovereign Gold Bonds investments, you do not have this issue as the gold comes in a ‘certificate’ format, and you do have to worry about security and storage. You can purchase SGB from banks online.

  • No Fraud or Theft Risk

When you buy gold in its physical form, you might have issues with the purity of the gold. Since, the purity of the gold is guaranteed by the government in the case of SGBs, there is no risk of fraud or theft.

  • High returns

In comparison with other investment avenues, SGBs offer great returns. Along with an interest of 2.5% per year, it also includes capital appreciation (returns due to an increase in gold price). It gives you guaranteed returns irrespective of market fluctuations. The annual fixed interest is one of the greatest features of SGBs.

  • No GST

Physical gold has GST charges, increasing the overall expense while purchasing gold. You also have to pay making and wastage charges. With Sovereign Gold Bond investments, you do not have to worry about this.

  • Less Tax

After the redemption of your SGBs, you do not have to pay any capital gain tax, but the annual interest income you get is taxed as per the IT law. Capital gains on SGBs after maturity are not taxed. It is recommended that investors hold their SGBs for 8 years, which is the maturity period. After 5 years, the investors have the option to exit. 

  • Loan Collateral

You can use SGBs as collateral for a loan in case you want a bank loan. It will also increase the chances of your loan approval.

  • Sovereign Guarantee

Contrary to other modes of gold investments, the Indian government issues SGBs, and has a government/sovereign guarantee. It overcomes default risk and makes SGB investments secure and safe.

  • Easily Tradable in Exchanges

You can sell SGBs at market price. It can also be traded on stock exchanges. Selling physical gold can be tricky as you might not always get the right price.

Conclusion

Gold has always been seen as one of the best investment avenues in India. Some buy gold believing it will bring good luck and fortune, while others buy it during festivals and special occasions and pass it on as an heirloom. However, buying gold in the form of bars or coins has some limitations.

 

Despite SGBs having some risk, it has stood the test of time and emerged as a solid gold investment option with minimal hassles and risk. Sovereign Gold Bonds investments are a great way of diversifying your portfolio, as investing across different asset classes is important. With lower risks, gold-linked returns and assured purity, these government-issued securities are undoubtedly a great addition to your investment portfolio.

Frequently Asked Questions

Are there any risks if I invest in an SGB?

There is a risk of capital loss in case the market value of gold depreciates. However, you do not lose the gold units that you paid for.

Are joint holdings of SGB accounts allowed?

Yes, joint holdings of SGB accounts are allowed.

Are Sovereign Gold Bonds a good investment?

Compared to a lot of other investment tools in the markets, SGBs are a relatively safer option as they do not only provide interest, but you can also enjoy capital appreciation.

What are the KYC norms for Sovereign Gold Bond application?

Every SGB application has to have the ‘PAN Number’ of the investor issued by the IT department.

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