Should I buy an SGB from the stock exchange?

What is your opinion about buying a Sovereign Gold Bond (SGB) through the secondary market (stock exchange)?
- Lincy Thomas

Buying a Sovereign Gold Bond (SGB) to invest in gold is a good idea. There are different ways to buy gold. One may purchase gold physically in the form of jewellery and pretend to make an investment for the bad times, but it's consumption. Then comes buying gold in a relatively pure form - coins, biscuits or any other form - issued by a bank, so purity is guaranteed. But I don't know how easy is it to sell.

The other way is through Gold Exchange Traded Fund (ETF). You entrust your money to the fund manager, who invests in gold. The gold is purchased in physical form and kept securely. So in a way, you become the part-owner of the gold held in physical form somewhere. Then you also have a gold fund of fund (FOF) for those who do not have a demat and trading account to invest in ETF. This FOF invests in ETF on your behalf. But all these have some cost attached to them in one or the other form.

SGB is the only vehicle where you get the appreciation in price and an additional interest of 2.5 per cent every year. And if you hold it till maturity, the taxation is also favourable. So it is an excellent form to hold gold. But you need to be a little careful while buying them through the exchange. The government has issued several bonds, and when you type SGB on the portal, a lot will come with different maturity dates. Some will be at a premium, and some will be at a discount. Their price keeps adjusting. Ensure that you buy the one at a discount and not at a premium. Also, all series may not have sufficient liquidity for you to buy. Though the original tenure of an SGB is eight years, the one that you will buy through the exchange would be an old one and may mature after, say, four or five years.

Understand all these things first and then buy them.

This article was originally published on January 11, 2022.