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Best Ways To Invest In SGB

22 Dec 2022 0 COMMENT

Introduction

Since the year 2015, when investment in sovereign gold bonds (SGBs) were first permitted, the gold bond scheme has emerged as a preferred vehicle to participate in gold in a non-physical mode. When you invest in gold bonds, it is like investing in physical gold without the hassles of storing and safekeeping. That is what makes these sovereign gold bonds unique in terms of their features.

How do you invest in SGB or sovereign gold bonds as they are called? You can either invest offline or you can invest online. The government sells these bonds through the RBI which retails these bonds through banks, post offices etc. There are a number of ways to invest in SGB, but here is a quick take on some more aspects of SGBs.

What are SGBs

Sovereign gold bonds (SGBs) are gold bonds denominated in a fixed quantity of gold. Such gold bonds can be purchases in minimum lots of 1 gram and maximum of 4 KG per person in a year. Holding SGB is exactly like holding physical gold without the hassles of storage, carrying charges, insurance, locker fees etc. You can hold SGBs as RBI issued certificates or in demat form. The value of the SGB moves in tandem with the price of 24 carat gold with 99% purity and the method of pricing has also been clearly defined in case of SGBs.

Features of SGBs

Key feature of SGBs can be summarized as under.

  • Sovereign gold bonds or SGBs are a non-physical method of holding gold. These can be either held in certificate form or in the demat account. The value of the SGB goes up or goes down in tandem with the price of gold.
  • The SGB typically carries interest at the rate of 2.5% per annum and payable half yearly. This is the additional income to the SGB holder over and above the capital gains they make from the appreciation of the price of gold.
  • The SGBs are denominated in units of called grams. The government assures your holding in terms of gold weight and also assures the payment of interest at the rate decided from time to time. That makes the bond free of default risk.
  • SGBs have a lock-in period of 8 years. However, the government does provide an exit in the form of a liquidity buyback window at the end of the fifth, sixth and the seventh year. It must be noted that the capital gains made on sale of SGBs is fully exempt from tax only if it is held for the full tenure of 8 years. Any holding less than that invites capital gains tax based on the holding period. Holding less than 3 years is short term and holding between 3 years and 8 years is long term capital gains.
  • SGBs are emerging as a good way to hedge portfolio risk with an exposure of around 10% to 15% of the overall portfolio. Gold normally moves in contrast to equities and debt and hence in tumultuous times, gold can be a natural hedge. That is a benefit that SGBs offer through a very convenient and elegant product called SGBs.

Ways to invest in SGBs

SBG forms are available through authorized outlets or through the website of RBI. Once the government of a tranche of SGBs through the RBI, the price is also announced. Such applications for gold bonds can be made physically through the scheduled banks, post offices, Stock Holding Corporation of India (SHCIL), NSE and on the BSE. However, applying for gold bonds digitally is a better idea.

If you have an online trading account or an internet banking account, you can apply for SGBs online. You are entitled to a discount of Rs50 per gram on the price for online applications.

Investing in SGBs

Investing in SGBs is simple and elegant and can be best managed online. It is a portfolio hedge and also gives you a non-physical product that is linked to gold prices.

Conclusion

Gold bonds or SGBs are a safe and secured way to invest in gold with elegance and convenience. It is a hedge, so it should be looked at as a portfolio hedge.