Are Sovereign Gold Bonds a good investment option?

In India, gold has always been considered as one of the best investment options. It is culturally relevant and a critical part of most festivals and celebrations. Many believe that gold brings luck and good fortune. However, it does have some limitations, especially if bought as jewellery, coins, or bars. For one thing, physical gold is difficult to store safely. A bank locker can be quite expensive, while keeping gold at home can be risky. Gold jewellery also comes with extra costs, such as making charges. 

Sovereign Gold Bonds eliminate all these hassles and offer better investment opportunities, safety, and ease of storage. This gold bond scheme is an excellent substitute for physical gold. Read on to learn more about it and whether you should invest in it.

What are Sovereign Gold Bonds?
 

A Sovereign Gold Bond is a type of bond issued by the Reserve Bank of India (RBI). The Government of India introduced it in November 2015 under the Gold Monetisation Scheme as an alternative to physical gold. It is denominated in grams, with each bond equating to one gram of gold. You can invest in them through a nationalised bank, scheduled private or foreign bank, or post office. You can also invest through the Stock Holding Corporation of India Ltd. (SHCIL) as well as authorised stock exchanges.

For instance, IDFC FIRST Bank offers Sovereign Gold Bonds with physical and Demat holding options for resident individuals, Hindu Undivided Families (HUFs), and registered entities such as trusts, universities, and charitable institutions. You can invest in a gold bond online or walk into any of the bank branches.

Features of Sovereign Gold Bonds

Here are some key features of Sovereign Gold Bonds.

• Fixed price: The price for a gold bond is set based on the average closing price of gold of 999 purity published by the India Bullion and Jewellers Association Ltd. (IBJA). The average is calculated on the price of the previous three business days of the week before the subscription period. 
• Fixed interest rate: The gold bond scheme offers a fixed rate of return of 2.5% per annum distributed twice a year. 
• Tenure: Sovereign Gold Bonds have an investment term of eight years. These bonds also have a five-year fixed lock-in period, and you can only redeem your investment after it ends. 
• Subscription quantity: You can invest in gold bonds in denominations of one gram of gold. The minimum subscription should be equivalent to at least one gram of gold. The maximum can be up to 4 kg for individual investors and HUFs. However, corporations and trusts can invest in up to 20 kg of gold. These limits are applied to each fiscal year. 
• Taxability: Sovereign Gold Bonds offer two types of returns – interest and capital gains. Capital gains are further classified as short-term and long-term. If you hold the bond for the entire term of eight years, you do not pay any long-term capital gains tax on your profits. However, long-term gains earned from resale after holding the bond for three years or more are taxed at 20%, along with indexation benefits. Short-term capital gains earned from the resale of bonds held for less than three years are added to your yearly income and taxed according to the tax slab you fall in.

Reasons why Sovereign Gold Bonds are a good investment
 

Here are some advantages of investing in Sovereign Gold Bonds.

• Low risk: These bonds are backed by the Government of India, which makes them a safe investment option. They are also relatively stable against volatility since gold is one of the strongest hedges against market instability and inflation. 
• No extra charges: Unlike physical gold, which has associated costs like making charges, exchange fees, etc., Sovereign Gold Bonds do not come with any additional charges. You get the value of the bond as per the prevailing rates. Moreover, since you don’t have to store bonds physically, you save money that you would otherwise spend on a bank locker. 
• Safety and security: Storing Sovereign Gold Bonds is easy and safe. There are no hassles as with physical gold. You can hold the bonds in a dematerialised form in your Demat account. However, having a Demat account to invest in gold bonds is not mandatory. 
• Fixed interest: You earn a fixed amount (2.5%) by interest from your investment, so your earnings are guaranteed. This is over and above the appreciation in the price of gold. 
• Tax benefits: There is no tax on your gains as long as you hold the investment until maturity. This helps to maximise your profits. 
• Assured purity: The purity of physical gold may be a concern as there is no guarantee. Every seller may be selling a different product. However, you can rest assured that you are investing in the highest quality gold backed by a sovereign guarantee in the case of gold bonds. 
• Flexibility: Sovereign Gold Bonds are one of the best investment options in terms of flexibility. They allow joint holding, and minors can invest in these bonds through their legal guardian. Some banks like IDFC FIRST Bank also offer online discounts for investing in Sovereign Gold Bonds.

Who can invest in Sovereign Gold Bonds?
 

The following investors can invest in Sovereign Gold Bonds.

• Those interested in investing in gold 
• Those expecting low-risk yet high returns
• Those looking to diversify their investment portfolio
• Those looking for a hedge against inflation

Conclusion
 

Several types of investment options are available in the market. However, the advantages of investing in gold cannot be stressed enough. Gold is revered in Indian culture and has been a solid financial asset across generations. New-age options like Sovereign Gold Bonds further strengthen the importance and relevance of gold in financial security. With gold linked return, lower risk, assured purity, and government-backed security, these bonds can undoubtedly be an excellent addition to your portfolio. 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank 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 mentioned. Please consult your financial advisor before making any financial decision.