Gold as a physical investment sometimes can be a bit inconvenient, it’s expensive, it’s heavy, it takes pain to store properly and safely, and you’re always scared that it might go lost, or God forbid, stolen.
It’s a hassle to keep, but ultimately, Gold is……. good, amazing even, this yellow metal has proved, time and time again, to be a wonderful investment against all investments, something safe to bet on when the market goes all crazy, something which has been a secure alternative across generations and something which has strictly only grown in value as time has passed.
It has its shortcomings as a rational investment, loads of it, but it has stood the test of time quite well. To cover those pesky shortcomings, there is a particular version of gold to make the prospect of this investment even better.
Enter: SGB’s or Sovereign Gold Bond
What is that?
Sovereign means of a nation, in our context, belonging to India!
Gold is well….GOLD, and
Bonds are securities, financial securities which in simple terms represent a promise of a borrower to pay back the sum which they have borrowed from you (bonds usually are for the long term, conventionally 5+ years)
Gold Bonds would be a sort of Digital or Physical (you choose whichever you want) Gold Certificates, or simply a form of Digital Gold which allows you to invest in Gold without the hassle of actually storing and safekeeping it, it would be a certificate which you can store digitally like the stocks your Demat accounts (also you can also literally shift the gold bonds to your Demat a/c if you want) or say kinda like your flight tickets, which you get on your mail inbox, and represent the paper ticket, the promise of the airline to allow you to fly within their aircraft.
These bonds are issued by the RBI under the directions of the Government of India, and hence are a highly secure investment, they won’t go down unless India as a country goes down, and if India does go down, you probably would have bigger things to consider about than your investment in gold.
Their value is denominated in multiples of grams of gold (minimum investment being 1 gram, and the upper limit being 4 Kilograms) and its value is tied to the market price of gold, so on redemption, you get interest income (2.5%) on this bond and the prevailing price of gold, and the best thing, nobody can steal it as they are in an electronic form, so you can ditch the special safes, almaaris and locks for this one.
Also, any Indian resident (citizen or otherwise) can invest in SGB’s, you can even invest on behalf of a minor, not exactly the best-est birthday gift, but certainly the most economically rational. And as a Cherie la top (my French utterly sucks), there is no GST or making charges like in actual gold, you don’t even have to pay capital gains tax on redemption, so that’s something.
Say, for example, if an investor invests in a 10 gram in SGB’s, at the price of say Rs 4927 (4877 per gram for SGB’s if you invest online), then they are entitled to a yearly interest income at 2.5% on this face value, plus on maturity, they will get the then prevailing price of gold (which will certainly be loads higher than 5k/gram, if historical records are to be believed) and it will be a tax-free capital gain!
The current interest rate for SGB’s is 2.50% per annum on your initial investment. It is paid twice a year (semi-annually) and the Bond is available for a period of 8 years with an early exit option after the 5th year.
The SGB 2021–22 Series IX is open for subscription till 14th January 2022, the issue price for this batch has been fixed to ₹4786/gram, and if you buy online, a ₹50 discount, meaning ₹4736/gram.
So consider this, you were kinda bored, scrolling through Netflix and just felt exhausted, chanced on this site through WhatsApp, read this amazing article and were super stoked to learn about SGB’s and want to invest in them right away, chances are that’s incredibly rare, but let’s go along with case…
Considering this was in 2016….Check out the above returns Table graph, the value of Gold rose from 2775 in Dec 2016 to 5012 in Dec 2020.
So to sum it all up, with SGB’s you’re
- Eliminating the risk of theft and cost of storage,
- Exempt from Capital Gains Tax (if held till maturity)
- Having fixed interest on a super-safe asset which is bound to appreciate
And you can do it all hassle-free, so like, really, you have time till 14th January, what are you waiting for?
Written by: Anish Valliramani