7 MinsJan 6, 2022
Gold offers a hedge against inflation and helps in asset diversification. Ideally, it should form 5-10% of your investment portfolio. But instead of physical gold, you can invest in gold digitally through Sovereign
Gold Bonds (SGBs).
Read on to know more about SGBs and why you should invest it them.
What are SGBs?
Sovereign Gold Bonds (SGBs) are issued by the Reserve Bank of India (RBI) on behalf of the government. Issued in denominations of 1 gram of gold and in multiples thereof,
SGBs are tradable on the exchanges. The bonds are eligible for conversion into demat form.
Benefits of investing in SGBs:
- Dual benefit of interest income during the holding period plus likely capital appreciation at maturity. As compared to this, your physical gold does not offer any interest. It has no value unless you sell it at a higher rate than the purchasing
- Unlike physical gold, you don’t have to worry about storing your SGB or losing out on making charges, etc, when selling it.
- With SGBs you are assured of transparency in pricing and purity of the gold.
- SGBs can also be used as collateral for a loan. The loan-to-value (LTV) is equal to a regular gold loan.
How it works
- Investment is possible only when the bonds open for subscription. Get the application form from any of the issuing banks ––Axis Bank is one of them –– or designated Post Offices/agents. You could also download it from
the RBI website.
- Online applications get a discount of Rs 50/gram lower than the issue price
- The minimum investment is 1 gm. The maximum investment is 4 kg for individuals and Hindu Undivided Family (HUF) and 20 kg for trusts.
- The maturity period is 8 years, with an option to encash/redeem prematurely after the fifth year.
- During the holding period, earn interest @2.50% p.a. (fixed rate) on the initial amount. This is credited semi-annually to your bank account. The last interest is payable on maturity along with the principal.
- The redemption price of the SGBs is based on a simple average of the closing price of gold (of 99.9% purity) of the last three business days from the date of repayment published by the India Bullion and Jewellers Association (IBJA).
[Also Read: How You Can Gain From Gold’s Glitter]
How are SGBs taxed?
- Another added advantage of SGBs is that they are exempt from Capital Gains Tax provided you hold them till maturity, i.e. for 8 years.
The precious yellow will play its role as an effective portfolio diversifier, a hedge (when other asset classes fail to post alluring returns), a safe haven, and command a store of value in times of economic uncertainties and financial crisis.
Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN 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.