Five features that make SGB investment unbeatable

Investors’ interest in Sovereign Gold Bonds (SGB) is increasing. During the last fiscal year, FY2023-24, investors purchased Sovereign Gold Bonds worth ₹27,031 crore, which is more than four times the SGBs purchased in 2022-23. Let’s understand what features make SGBs stand out compared to physical gold.

1) The increasing attraction towards SGBs can be attributed to better returns and tax benefits. While physical gold like jewellery, coins or bars only appreciates in price, Sovereign Gold Bonds offer an annual interest rate of 2.5% along with appreciation. This means that you’ll receive the market value of 999 purity gold decided at that time of redemption or pre-mature redemption. Hence, there’s an expectation of higher returns with Sovereign Gold Bonds.

Unlike physical gold, there’s no hassle of storing Sovereign Gold Bonds in lockers or safe deposit boxes, saving you locker costs. To mitigate the risk of loss or theft, you can hold bonds in digital form, i.e., in a demat account.

RBI periodically issues the installment of SGBs. These bonds can be purchased from governmental and private banks, post offices, Stock Exchanges, and Stock Holding Corporation of India Limited (SHCIL). Additionally, there’s a discount of ₹50 per gram for digital payments. Bonds held in demat accounts can be sold on the Stock Exchange, providing investors with liquidity and the convenience of selling whenever they want.

Checking the purity of gold is a significant challenge when purchasing jewelry. Additionally, you incur making charges while buying jewelry. Sovereign Gold Bonds offer purity and exemption from making charges compared to jewelry. SGBs are government bonds priced based on the gram of gold, with the minimum price of a bond equal to the price of one gram of gold. Issued by the Reserve Bank of India on behalf of the Indian government, SGBs carry minimal risk.

Sovereign Gold Bonds offer better tax benefits compared to gold jewellery. Interest earned on Gold Bonds is subject to income tax based on the income tax slab. However, there is no capital gain tax on maturity of the bond after 8 years or pre-mature redemption with RBI after 5 years. In case of jewellery or coins, there is a long term capital gain tax of 20% on holding them for more than 3 years and then selling them.

Any individual can purchase a minimum of 1 gram and a maximum of 4 kilograms of gold under the Sovereign Gold Bond scheme in a financial year. If you want to invest in gold for long term, then SGB can be a good option for gold jewellery. Here you get better returns, no hassle of handling or theft, no tension of purity and tax benefits as well.