The government has been wise enough to well time the launch of its third tranche of sovereign gold bonds or SGBs just ahead of the festivities. Sale of gold increases substantially as part of the age-old practice and in line with it this time around the window for investment in SGBs will remain open for a longer period from October 9 to December 27, 2017.
Now the question that comes up is what is the best instrument to invest in gold, physical gold or SGBs?
Except in the case when you need to use gold as jewellery, you have all the reasons to go for SGBs otherwise. Here are mentioned the advantages of SGBs over physical gold.
1. GST is applicable on purchase of physical gold: After the implementation of GST on a nationwide basis from July 1, GST is charged to customers on buying physical gold which is not the case when you buy SGBs.
2. Fixed interest rate of 2.5% p.a payable semi-annually: Buying physical gold does not provide any return on it except for the capital appreciation advantage.
3. Capital gains on redemption of SGBs at maturity to be tax exempt: SGBs have a term of 8 years with an option to exit the investment from fifth year. Any capital gains accruing from the investment are tax-exempt in case the redemption is made at maturity else when sold in the secondary market after three years time tax @ 20% providing the indexation advantage is levied. If the paper form of gold is before three years time then normal tax rate applies.
4. Investment limit has been raised to 4kg from earlier 500 gms in a year: To make the scheme more attractive for HNIs, investment limit for retail investors has been increased to 4 kg while for other institutional and trust it is 20 kgs. For online purchase of SGBs, a discount of Rs. 50 per gm of gold shall be available.