Sovereign Gold Bond Scheme: worth it or not
Sovereign Gold Bond Scheme. If you want to invest in gold but want to avoid the hassle of physical gold, then this scheme can be perfect for you. So let’s understand about it in detail – what is this scheme, how does it work, what are its benefits, and should you invest in it?
What is Sovereign Gold Bond?
Sovereign Gold Bond (SGB) is a government-backed investment scheme issued by the Reserve Bank of India (RBI). What it means is that it is a bond in which you invest in gold, but you do not need to keep physical gold (like gold coins or bars) at home. It is in a paper-based or digital form and its value is linked to the market price of gold.
There is a little twist in this – you get interest along with gold! Yes, you heard it right – this is different from your normal gold investment, where you have to wait for the price of gold to increase. You also get 2.5% annual interest in SGB, which is credited to your bank account every 6 months. This scheme was launched in 2015, and since then it has become quite popular.
How does this scheme work?
Now it will get a little technical, but don’t worry, I will explain in simple language. Sovereign Gold Bond is an investment for 8 years. Meaning, you invest money in it, and after 8 years you get your money back – as per the market price of gold at that time. But if you want, you can exit even after 5 years, meaning you can sell the bond.
This bond is issued in units of 1 gram gold, and the minimum investment is 1 gram. What is the maximum? If you are an individual investor, you can invest upto 4 kg per financial year. These bonds are issued by the RBI, but you can buy them from banks, post offices or stock exchanges (like NSE and BSE). Payment can be made either online or offline.
When you buy the bond, the rate is fixed according to the gold price of that day. And when the maturity occurs after 8 years, you get a return according to the gold price of that time. Plus, you also get 2.5% interest in between. This scheme gives a double blow of both gold price appreciation and interest!
What are the benefits of Sovereign Gold Bond?
Now let’s talk about its benefits, because this is the only thing that will help you decide.
No tension of safety
There is always a fear of theft or storage while buying physical gold. If you keep it in a locker, there is locker expense, if you keep it at home, there is tension. With SGB, this problem is over! It is in digital form, so there is no risk of theft. And it is government-backed, so there is no chance of default.
You get extra income
In normal gold, you only have to wait for the price to increase, but in SGB you get 2.5% interest. This is better than gold jewellery or bars, where you do not get any interest.
No Making Charges
When you buy jewellery, you incur extra money for making charges and wastage. None of this is the case with SGB – you invest in the value of pure gold, without any extra cost.
Tax Benefits
If you hold the bond for 8 years and sell it on maturity, the capital gain is tax-free. This is a big advantage, because long-term capital gains are taxable when physical gold is sold.
Liquidity
You can sell this bond on the stock exchange after 5 years, if you need money. So this is also flexible.
Are there any disadvantages?
Yes brother, everything has two aspects. So SGB also has some disadvantages, which you should know:
Long-Term Commitment
This is an investment of 8 years. If you need money quickly, then this can be a bit difficult for you. There is an exit option after 5 years, but not before that.
Gold Price Risk
If the price of gold falls at the time of maturity, then your return can also be low. The interest is fixed, but the principal amount depends on the gold price.
Limited Availability
These bonds are not available all the time. RBI opens subscription windows from time to time, so you have to wait for that.
Who can invest?
This scheme is for individuals living in India, HUFs (Hindu Undivided Families), trusts, universities, and charitable institutions. NRIs cannot invest in it. You can buy in your name or in joint holding. Parents or guardians can also invest for children.
How can one buy?
Buying SGB is quite simple:
Step 1: When RBI announces the subscription window (usually every 2-3 months), then you can apply.
Step 2: Fill the form through banks (like SBI, HDFC), post offices, or stock brokers.
Step 3: Make payment – cash, cheque, deman
d draft, or online banking.
Step 4: The bond is credited to your demat account or you can get a physical certificate.
The price is based on the average closing price of 999 purity gold, which is fixed by the India Bullion and Jewellers Association (IBJA).
Sovereign Gold Bond Vs Physical Gold Vs Gold ETF
Now the question arises – is SGB better or physical gold or Gold ETF? Let’s compare:
Physical Gold: This is traditional – jewellery, coins, bars. But it has storage cost, making charges, and purity risk. Return is only received from price appreciation, not interest.
Gold ETF: It trades on the stock market and is liquid. But it does not give interest and there are management fees too.
SGB: It is safe, pays interest and also has tax benefits. But long-term commitment is required. So if you want a safe and steady option, then SGB wins!
Should you invest in SGB?
This depends on your financial goals. If you want to invest in gold but want to avoid the risks of physical gold and also want some extra income, then SGB is a good choice. This is perfect for those who are ready for long-term investment and focus more on the financial value of gold than its emotional value.
But if you want to invest money for short-term or are afraid of gold price fluctuations, then perhaps this is not for you. Talk to your financial advisor, and decide according to your risk appetite.
Conclusion: A new way of investing in gold
Friends, Sovereign Gold Bond Scheme is an option that mixes the traditional charm of gold with modern financial benefits. It is safe, government-backed, and gives you tax benefits along with interest. For gold lovers, this is a new and smart way to grow their money.
So what are you thinking? Next time when you open the RBI SGB subscription window, do some research, and add some gold to your portfolio – Sovereign Gold Bond style! If you liked this blog, do share it with your friends, and tell us about your investment plans in the comments. Happy investing!