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6 reasons to invest in Sovereign Gold Bonds now

3 min read Sep 6, 2023


Gold has been seen as a sign of prosperity for ages. When it comes to investing, it has a track record of generating wealth, giving 12% annualised returns* over the last two decades. If you're thinking about putting your money into gold this festival season, you might want to take a closer look at Sovereign Gold Bonds (SGBs) because they outshine physical gold in several ways. Given that the upcoming series of SGBs is open for subscription from September 11 to 15, 2023, this presents a prime opportunity to consider investing in SGBs. Let's dive in and learn more about it.

What are Sovereign Gold Bonds (SGBs)?

For ages, Indians have had a soft spot for physical gold, and it forms a considerable share of household savings. But, when it comes to investing, physical gold has a couple of downsides - it's a hassle to store, and it can be costly due to safe-keeping and making charges. That's where Sovereign Gold Bonds (SGBs) step in. They were launched in November 2015 by the Reserve Bank of India (RBI) on behalf of the Indian government to encourage investors to shift from physical gold to financial savings.

Investing in pure gold through a certificate

Think of Sovereign Gold Bonds (SGBs) as a way to invest in gold without physically owning it – yes, you got it right. They provide an avenue for investing in pure gold through a certificate. These certificates can be availed in physical format as well as in digital form, depending on your preference.

In simpler terms, these are government securities denominated in grams of gold. The RBI releases these bonds in multiple series throughout each financial year, typically open for subscription for 5 days. You can invest in SGBs through various channels, including banks, post offices, stock exchanges and the Stock Holding Corporation of India Limited. Now, let's dive deeper into what makes them tick and their advantages.

Key features:

  • SGBs are government securities where each unit of the bond holds the equivalent value of one gram of gold.
  • They offer fixed interest of 2.5% per annum, which is paid semi-annually, on the initial investment.
  • Tenure of the bonds is 8 years with an exit option after the 5th year.
  • Redemption price is based on a simple average of the closing price of gold of 999 purity of the previous 3 business days from the date of repayment.
  • Minimum investment is equivalent to 1 gram of gold per tranche.
  • Maximum investment limit is 4 kg for individuals and 20 kg for trusts and institutions in a financial year.
  • No tax on capital gains if held till maturity of 8 years.
  • Discount of Rs 50 on online investing.

6 compelling reasons why to invest in SGBs

1. Best of both worlds: SGBs offer you a sweet deal – a fixed interest rate of 2.5% per year on the bond's value, along with the potential for your investment to grow as gold prices rise. It's like having your cake and eating it too, with a guaranteed income from interest and a chance to benefit from gold price increases.

2. Low risk: These bonds are about as safe as it gets. They're backed by the government, so there's no credit risk or fear of a default. That makes them one of the safest options when it comes to investing in gold.

3. Availability of early exit option: Even though SGBs have an 8-year term, you can choose to cash out early after the 5th year, and you can do this on every interest payout date. You can also convert them into demat form and sell them in the secondary market. Just keep in mind that volumes are very low in the secondary market.

4. Tax benefit: If you hold onto your SGBs until they mature, you won't have to pay any capital gains tax. This is a big plus because other forms of gold investments often come with capital gains tax. Even if you decide to withdraw after the lock-in period of 5 years, any long-term capital gains arising from this are eligible for indexation benefits.

5. No other charges: You don’t need to pay Goods and Services Tax (GST) on buying these bonds. This makes them attractive compared to physical as well as other digital forms of gold investing which do attract 3% GST.

6. Convenience: Unlike physical gold, you won't need to worry about the purity of the gold or the headache of storing it securely. Plus, you can save an extra Rs 50 if you choose to invest online. It's like the cherry on top.

In summary, Sovereign Gold Bonds are an excellent choice for investors with a moderate risk tolerance. They come with numerous advantages, including a guaranteed income, potential for capital growth, and tax efficiency, making them a golden opportunity for those seeking stability, portfolio diversification, and protection against inflation. You can easily invest in Sovereign Gold Bonds through Axis Bank's convenient internet and mobile banking platforms.

* Data as of July 31,2023

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision