Published: 30th Aug 2024
By: Value Research
Have you heard of sovereign gold bonds (SGBs)? SGBs were introduced in 2015. Although they are a substitute for holding physical gold, they enjoy significant advantages. Let’s look at their benefits in the next slide.
1. SGBs are safe. They are guaranteed by the Indian government. 2. SGBs are in a digital format, so there is no risk of theft/robbery. 3. SGBs offer guaranteed 2.5% annual interest. Physical gold doesn’t. 4. SGBs are held electronically, whereas keeping physical gold in a safe can cost you additional money. 5. If you hold SGB until maturity, the gains are tax-free. With physical gold, you have to pay short or long-term capital gains tax.
1. You have to pay tax on SGB gains if you sell before it matures. (Maturity period is 8 years) 2. An individual investor can’t buy more than 4 kg of SGBs.
While SGBs have a few drawbacks compared to physical gold, they still make more sense. There are two ways to invest in them: 1) You can buy them from banks and post offices when the RBI issues them. 2) You can buy them from the stock exchange at any given point. All you need is a demat account.
In fact, existing SGBs in the stock exchange may be available at a cheaper price than when the RBI first issued them. Why? Since SGBs have an 8-year holding period and there are few buyers in the market, sellers are often compelled to offer their investment at a lower price.
For instance, in 2023, some SGB issues were available on the stock exchange at discounts of up to 6%.
Before buying SGBs from the stock market, compare their original issue price. Only if you find them at a discount should you subscribe to SGB.