loader2
Partner With Us NRI

Why Invest in Sovereign Gold Bonds?

People have been investing in gold for hundreds of years.

Unlike in the past, investors today have many options when it comes to gold investing, including physical gold (jewellery, bars and coins), gold exchange traded funds (gold ETFs), digital gold and Sovereign Gold Bonds.

Among the options, SGBs offer investors one of the easiest and safest ways to invest in gold.

What are SGBs?

Issued by the government of India, SGBs are tradeable securities that are denominated in grams of gold (of 99.9% purity).

As an individual, you can invest in as little as 1 gram of gold and as much as 4kg. Your investment fetches an interest of 2.5% per annum, payable half-yearly.

SGBs have a maturity period of 8 years with an early exit option after the fifth year. But the advantage of SGBs is that they are traded on the exchanges and you can sell your units like you would sell a share.

SGBs are backed by a sovereign guarantee so there is no credit risk. SGBs attract 0% tax on capital gains if held to maturity.

Why you should invest in SGBs

Gold as an investment has many benefits: it’s a great diversifier, an excellent store of value, a safe haven, highly liquid, a good hedge against inflation and carries no counterparty risk.

Among the many ways to invest in gold, SGB offers many advantages.

Here’s a table comparing the different ways of investing in gold

Comparison of ways to invest in gold

Factors

Physical Gold

Gold ETFs

Sovereign Gold Bonds

Liquidity

High

(Sell to jeweller)

Very High
(Sell to the mutual fund house or trade it on exchanges)

Very High

(tradeable on exchanges; redeemable after 5 years; matures after 8 years)

Returns

Linked to market price

(but selling price will usually be lower)

Redeemable at NAV or CMP (which is linked to market price of gold)

Linked to market price

+ 2.5% interest on investment

Taxation (holding period under 3 years qualifies for STCG; over 3 years is LTCG)

STCG at marginal rate

LTCG at 20% with indexation

STCG at marginal rate

LTCG at 20% with indexation

No capital gains if redeemed on maturity.

If redeemed before maturity, then STCG at marginal rate; LTCG at 20% with indexation

Purity

Not guaranteed

(especially if not hallmarked)

Backed by physical gold of 99.5% purity

Not backed by physical gold but tracks price of 99.9% pure gold

Expenses and costs

High making charges

(20-35% for jewellery); storage costs and GST

Expense ratio and tracking error

Zero tracking error, low cost

Loan

Allowed as collateral

Allowed as collateral

Allowed as collateral

Advantages of SGBs!

  • Sovereign Gold Bonds are a cost-effective way of investing in gold
  • No making charges (20-30% of jewellery cost)
  • No security, storage risks as in physical gold
  • Gold ETFs have a higher expense ratio and tracking error
  • Tax efficient: No long-term capital gains tax, if redeemed on maturity
  • SGB’s provide a half yearly interest payout at the rate of 2.5% p.a.
  • Sovereign-backed so zero credit risk
  • Tradeable in the exchanges

Ready to go for gold? Then look no further than SGBs.

Disclaimer: ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. I-Sec is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. AMFI Regn. No.: ARN-0845. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund related services are not Exchange traded products and I-Sec is just acting as distributor to solicit these products. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism.  The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.

Most Popular

  • 18 Jan 2022
  • ICICI Securities

Upcoming Union Budget 2022: F&O Trading and Risk Management Strategies you Should Note to Manage Risks Better

The Union Budget of India, also referred to as the Annual Financial Statement in Article 112 of the Constitution of India, is the annual budget of the Republic of India. The Government presents it on the first day of February so that it could be materialized before the beginning of new financial year in April.

  • 17 Jan 2022
  • ICICI Securities

TCS announces Rs 18,000 crore share buyback: How can Investors benefit from the opportunity?

Tata Consultancy Services Limited board on 12th Jan, 2022 approved a proposal to buy back upto 4,00,00,000 Stocks for an amount not exceeding Rs 18,000 crore at Rs. 4,500 per share. 

  • 12 Jan 2022
  • ICICI Securities

What is a Bond Ladder? & How to Use it to gain from Debt Funds?

Investing in bonds that mature on different dates makes a bond ladder. Read on to know how to make gains from debt funds using a bond ladder.

  • 12 Jan 2022
  • ICICI Securities

The shoe must go on! An overview of the Indian footwear industry

The Indian footwear market has seen many changes in customer behaviour towards footwear.

  • 12 Jan 2022
  • ICICI Securities

Is a 50:50 investment in Large-Cap & Mid-Cap Funds a good idea?

Large-Cap vs Mid-Cap asset allocation can be tricky, especially when the market is experiencing some headwinds. Developments and economic cues can either push the market indices higher or push them off a cliff.

  • 11 Jan 2022
  • ICICI Securities

Demerger in Motherson Sumi Systems Limited: Implications on your F&O positions

Motherson Sumi Systems Limited has fixed a Record Date of January 17, 2022 for the purpose of issuance and allotment of 1 equity share of Motherson Sumi Wiring India Limited for every 1 equity shares to shareholders of Motherson Sumi Systems Limited.

  • 11 Jan 2022
  • ICICI Securities

NSE to launch Futures and Options for Nifty Midcap Select Index from 24th January

F&O Trading has evolved in India with F&O volumes now contributing to more than 95% of overall NSE volumes. F&O volumes in NSE have nearly doubled in FY 22 compared to FY 21 same time.

  • 09 Jan 2022
  • ICICI Securities

Demerger in GMR Infrastructure : Implications on your F&O positions

GMR Infrastructure Limited has fixed a Record Date of January 12, 2022 for the purpose of issuance and allotment of 1 equity share of GMR Power and Urban Infra Limited for every 10 equity shares to shareholders of GMR Infrastructure Limited.

  • 06 Jan 2022
  • ICICI Securities

Best Stocks to Buy in 2022

The new year is here, which means it's time for new investments! If you're wondering which are the best stocks to buy in 2022 that will give you returns in the range of 20%-80%, we've got a list of 10 top stocks in different sectors that you should definitely consider for your portfolio.

  • 04 Jan 2022
  • ICICI Securities

What is smallcase? Know Investing Ideas via smallcases

In our efforts to offer you the most seamless investing experience, we’ve partnered with smallcase. What exactly are smallcases? They are baskets of stocks or ETFs based on relatable ideas. They are professionally managed by registered entities or individuals.