Indian housewives hold 12% of the world's gold. Unbelievable! Gold is a good investment but not in gold jewellery. If you invest in gold jewellery, you only get 1.5% returns, that's it. The best alternative for gold investments is Sovereign Gold Bonds issued by the RBI. How?
SGBs are a good investment option for those who don't want to deal with the headaches of keeping actual gold. This is due to the fact that it is simple to save this in Demat form, and no one can steal it because it is in electronic form. Also, it's ideal for those with a low-risk appetite because it's a low-risk investment. When compared to actual gold, the cost of buying and selling SGBs is quite cheap.
What are Sovereign Gold Bonds?
Sovereign Gold Bonds, substitutes for holding physical cards, are government securities denominated in grams of gold and issued by the Reserve bank of India on behalf of the government of India. Each bond tracks the price of one gram of gold.
Why should you invest in SGBs rather than Gold Jewellery?
Since the investor receives the current market price at the time of redemption/premature redemption, the amount of gold for which he paid is safeguarded. The SGB is a better substitute for actual gold. The hazards and expenses of storage are no longer an issue. Investors are guaranteed the market value of gold upon maturity, as well as monthly interest. In the case of gold in the form of jewelry, SGB is free of difficulties such as manufacturing charges and purity. The bonds are held in the RBI's records or Demat form, removing the danger of scrip loss.Acts as a huge hedge against inflation and also affords liquidity during the time of instability.
Benefits of SGBs
- Assurance of the market value at the time of maturity.
- Earns you interest, as well as capital gains at redemption
- Allows you to Diversify your investment portfolio.
- Can be used as collateral for loans from banks and financial institutions.
- Free from issues like jewelry-making charges and purity.
- SGBs are cost-effective and can be bought in small tranches to avoid timing risks.
- RBI will give you a 2.5% return on your investment every year.
- In comparison to real gold, the cost of buying or selling the SGB is very minimal.
- There won't be any kind of default rate and there will also not be any kind of GST or making changes.
- Another good thing is that when you sell the gold bond, there will also not be taxable.
There are no costs connected with SGBs. SGBs are more appealing to long-term investors than gold mutual funds. If you retain the SGB until it matures, you won't have to pay capital gains tax on the earnings. Interest is applied to your earnings and taxed at the slab rate.
Features of SGBs
- Minimum investment is 1 gram gold
- Maximum investment is 4 kgs gold
- Capital gains tax applicable if sold before 5 years. But it is tradable anytime before 5 years as well.
- 0% GST and Making Charges
- 2.5% coupon rate on your investment
- You can use it as collateral for loans
- The tenure of the bond is 8 years. You will have to return after this period, you cannot hold it after this period'
Who Can invest in SGB in India?
SGB is open to everyone who is a resident of India as specified by the Foreign Exchange Management Act of 1999. Individuals, trusts, HUFs, charity institutions, and universities are all eligible investors. Individual investors who change their residency status from resident to non-resident may keep their SGB until they are redeemed or mature early.
Risk Factor - If the price of gold falls, there's a chance you'll lose money. However, the investor does not lose money in terms of the gold units he purchased.