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Should I invest in Sovereign Gold Bonds?

Dhirendra Kumar sheds light on SGBs as an investment option

I have SIPs running in HDFC Equity of Rs 2000 and in HDFC Mid-cap Opportunities of Rs 1500 for about five years now. Also I've been investing in ICICI Pru Value Discovery for two years now. This month I started with SBI Equity Hybrid. I do not need any money in the next seven to eight years. I also have some debt exposure in PPF. Is my portfolio fine? Further, I have a lump sum; would it be beneficial to invest it in Sovereign Gold Bonds?
- Rakesh

I feel for a time horizon of eight years, you can without any worries continue your SIPs. Every few years, markets present you with a situation forcing you to think about your plan. Investments in equity are broadly a bet on our economy. And if you are optimistic that in the next seven to eight years our economy will turn out stronger and the companies will perform better, you should continue. I feel this will happen. But to predict what will happen in the next three to six months or even one year is exceedingly difficult. To reiterate, given your time frame, you can well stick to your plan.

Regarding gold bonds, whenever there is uncertainty, the price of gold rises. Whenever SGBs are issued, it is issued depending on gold prices at that time. So today you might end up buying it at an expensive price. Further, this investment is for eight years, so if you invest Rs 100 today, then it will be divided by the gold price today, and you will be allotted that much gram of units. After eight years, whatever the gold price will be, you will get it on that basis. In between, you will also receive a 2.5 per cent interest rate. The return that you will get is free from any long-term capital gains tax. So these are the advantages of Sovereign Gold Bonds (SGBs).

Having said that, gold is not a productive asset, though given the situation, people may find this inappropriate. But whenever the economy will restore and things will get normal, then we may find gold to be less attractive.