Give your investments a golden touch

6 MinsMay 23, 2022

When it comes to investments, gold plays a pivotal role. It serves as a diversifier, a hedge against inflation, and is a haven during economic uncertainties. This is because gold usually shares a negative correlation with other asset classes such as equity.
Hence, consider allocating a portion –– say, around 10%-15% ––– of your total investment portfolio to gold. 

Give your investments a golden touch

Gold as an asset class
Unlike financial assets, gold is a real asset. It means that gold does not carry credit or counterparty risk. It would be sensible to invest in gold for a long-term period, say 8-10 years. Over the long term, gold has exhibited an encouraging uptrend. If you are looking for a long-term investment in gold, then Sovereign Gold Bonds (SGBs) are a worthwhile option. So, consider adding SGBs strategically to your investment portfolio as and when they open for subscription.

Features of Sovereign Gold Bonds:

  • The Reserve Bank of India (RBI) issues SGBs on behalf of the government at the issue price 
  • You can invest in SGBs if you are a resident individual, HUF, Trust, University, or Charitable Institution.
  • Joint investment is permitted in SGBs. A legal guardian can invest on behalf of a minor. 
  • The minimum investment allowed in SGBs is 1 gram of gold, while the maximum is 4 kg in the case of individuals, 4 kg for HUFs, and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (i.e. April – March). 
  • SGBs are issued in denominations of 1 gram of gold and multiples thereof.
  • You can invest in SGBs through an issuing bank. Axis Bank is an issuing bank and you invest digitally through the bank’s website or mobile banking app. 
  • Once allotted, SGBs will reflect in your ‘certificate of holding’. 
  • SGBs are held in the books of the RBI. You have the option to hold them in your demat account. They are tradable on the exchanges 
  • The tenor for SGBs is eight years, but you cannot sell your SGBs for a minimum period of five years
  • At the end of the fifth year, you can exercise the option to exit on the interest payment date.
  • At maturity, i.e., after eight years, the interest amount and redemption proceeds will be credited to your bank account directly by RBI.

[Also ReadEnjoy 3X happiness by investing in Sovereign Gold Bond]

Benefits of investing in SGBs

  • During the holding period, SGBs earn you interest @2.50% p.a. (fixed rate) on the investment amount. The interest is credited on a half-yearly basis to your bank account. The last interest will be payable on maturity along with the principal. The interest earned is not subject to Tax Deduction at Source (TDS).
  • You have the chance to potentially benefit from capital appreciation since SGBs are linked to the price of gold.
  • These dual benefits work as a sort of hedge for your investment portfolio. 

Tax implication of SGBs
Interest earned on SGBs is taxable (under ‘Income from Other Sources’) and will be taxed as per your income-tax slab. 

The capital gains on the SGBs held till maturity (i.e. eight years) are exempt from capital gain tax. But in case of a premature redemption after the lock-in period of five years, Long Term Capital Gain (LTCG) tax @ 20% (with indexation benefit) will be levied, plus the applicable surcharge and 4% cess.

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.