In India we’ve traditionally bought gold either as jewellery or as bullion (coins/bars). With that came the obvious challenges of purity, resale, storage etc. SGBs are a new-age way of buying physical gold in the digital form which addresses all these challenges & some more.
SGBs are bonds denominated in gold issued by the RBI & backed by the Government of India. Hence the name Sovereign Gold Bond. They are a substitute for buying & holding physical gold.
You can choose to purchase a minimum 1 gm or a maximum of 4 kgs per individual in a year for which you get a certificate as proof mentioning the quantity etc. SGBs are only issued for 24 k gold purity.
SGBs are normally made available in tranches-the latest one priced at 5873/- per gram (5923/- less 50/- discount for online mode) closes today 15th Sep 2023. The maturity of these bonds is 8 years during which the investor also gets a 2.5% interest annually on the amount invested.
At the time of maturity you get back the money equal to the price of gold in the market at that time, for the quantity you are holding. SGBs have a 5 year lock-in & are fully exempt from capital gains tax. These can also be gifted or transferred just like physical gold.
Who are SGBs for?
If you’re looking to INVEST in gold (bullion-coins/bars), SGBs are the preferable mode since they solve the ambiguity around purity & resale value having been issued by the RBI/GoI. Being digital you dont need bank/domestic lockers to store & you make an extra 2.5% every year. Logistically it is convenient since purchase & redemption happens online & like all your other investments (MFs/Equity stocks etc) you have a digital proof of investment which shows current value as gold prices fluctuate.
Another alternative can be where you liquidate your physical gold & invest those funds in SGBs if you wish to continue your gold investment allocation. Apart from all the benefits of SGBs this also increases your overall yield on the gold investment. The caveat although is that most people's physical gold might have been bought to park cash & investing in SGBs will now regularise that.
SGBs are not for those looking to BUY gold jewellery (for consumption and/or investment) or park cash in gold.
However if you're looking to buy gold jewellery that you may only need at a later date (say for your child's marriage) then investing in SGBs is a good idea. Your funds earmarked for gold jewellery stay invested in gold for 5-8 years, earn an interest & on redemption the funds can be used to buy gold jewellery at a date closer to the marriage/actual usage. More bang for the same buck.
Its relevant to put it out there that most gold purchase in India over the years has happened via cash. The SGB is an accounted official ‘white’ money investment. That further narrows the funnel of who this may be suitable for.
For those who dont have a lumpsum available to invest when the SGBs open, they can SIP their savings in mutual funds & utilise those to invest in SGBs as & when they open for investment.
How to buy SGBs?
You can buy them offline via banks or post offices or online via the NSE (National Stock Exchange). Click here to invest online in SGB with Ashoonya or drop us a line on +91 7770 059 059 or financialwellbeing@ashoonya.in (Invest online, track 24/7 on the Ashoonya App & redeem online)
Needless to say, as always we dont advice clients or investors to invest in any asset unless we do first. We put our money where our mouth is & have personal investments in SGBs online via our own Ashoonya OIA on the NSE.
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