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How Sovereign Gold Bonds Score Over Physical Gold

ICICI Securities 11 Mar 2022

There are various facets to investing in Sovereign Gold Bonds. Some of them are listed below

  • SGBs give higher returns as your holdings earn a simple interest rate of 2.5% per annum payable half-yearly
  • There is no risk of theft or loss with SGBs as the units of gold are stored with RBI
  • You don’t have to worry about the storage cost, which is not the case with physical gold
  • The purity of gold is guaranteed as SGBs are issued by RBI on behalf of the government
  • There are no making charges that you have to pay at the time of buying or lose at the time of selling

The Indian households’ penchant for gold investment is well-known. While most Indians earlier invested in physical gold, including jewellery, bars and coins, with new options, including Sovereign Gold Bonds (SGBs), gold funds and gold exchange-traded funds, that is changing somewhat.

The latest tranche of SGBs is now open for subscription. SGBs are securities that are issued by the Reserve Bank of India (RBI) on behalf of the government. These securities are denominated in gold and are, hence, considered substitutes of physical gold. One unit of SGB is equal to 1 gram of the yellow metal.

Here are some features of SGBs that make them better investment options than physical gold.

SGBs Give Higher Returns

While physical gold is available at the prevailing market prices, SGBs pay the value if gold as well as an interest amount. SGBs earn a simple interest of 2.5 per cent per annum, which is paid half-yearly. However, the interest is taxable in the hands of the investors.

Besides, when you sell physical gold, the dealer usually deducts the making charge, which is not the case with SGBs. Making charges can usually be in the range of 5-10 per cent or more, depending on where you buy your physical gold from and which form. For instance, jewellery has higher making charges than, say, gold bars or coins.

Storage Or Theft Is Not An Issue

One of the major factors that acts as a deterrent to investments in physical gold is storage. You either have to store physical gold in your home or institutional locker like the ones provided by the banks. Moreover, the risk of theft or loss is higher in physical gold. In both the cases, you will have to bear a cost for the safe storage of physical gold.

You won’t have to worry about such issues when buying gold in the form of SGBs as the responsibility of storage lies with RBI. Besides, you get cash when you redeem the bonds.

Also Read: Why Invest in Sovereign Gold Bonds?

Purity Of Gold Is Guaranteed

Since SGBs are issued by RBI on behalf of the government, you don’t have to worry about the purity of gold. It has been often observed that at the time of selling physical gold, which has been bought from a jeweller or retailer, purity of gold becomes a concern. Few jewellers and retailers guarantee the quality and purity of gold at the time of selling.

Disclaimer: ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. 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.

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