Gold has been considered safe and secure investment for long time. It is not matter to inflation, and it can be hedge against market volatility in sometimes. In recent years, there has been increasing interest rate in sovereign gold bonds as a way to invest in gold.
Already discused above, Gold has been considered safe and secure investment, and sovereign gold bonds (SGBs) offer a convenient and affordable way to invest in gold. SGBs are government-backed securities that are denominated in grams. This means that when you buy an SGB, you are essentially buying small amount of gold that is backed by the government.
Advantages of Sovereign Gold Bonds
- Easy to buy and sell: Sovereign gold bonds can be bought and sold through several firms, including banks, post offices, and stock exchanges. This makes them much more accessible than physical gold.
- Guaranteed by the government: Sovereign gold bonds are guaranteed by the government of India. This means that investors are guaranteed to receive the full face value of their bonds, plus any interest that has accrued, at maturity on time.
- Tax benefits: Sovereign gold bonds offer tax benefits. For example, the interest earned on sovereign gold bonds is tax-free up to certain limit.
- Liquidity: SGBs are listed on stock exchanges, so they can be easily bought and sold.
- Affordability: SGBs can be bought in small denominations/amount, starting at just 1 gram . This makes them an affordable investment for investors with limited funds.
The Risks of Investing in Sovereign Gold Bonds
- Gold price volatility: The price of gold can fluctuate according to market, so there is some risk involved in investing in sovereign gold bonds. However, the government guarantee means that investors are protected from any loss in the value of gold.
- Lock-in period: Sovereign gold bonds have a lock-in period of 8 years. This means that you cannot sell your bonds before the end of the lock-in period.
- Low returns: The interest rate on SGBs is relatively low, so investors may not see significant returns on their investment.
- Capital loss: If the price of gold falls, investors may experience capital loss on their investment.
How do SGBs work?
When you buy an SGB, you are essentially buying government-issued certificate that represents a certain amount of gold. SGB`s price is based on the prevailing market. You can hold SGBs in physical form or in dematerialized form.
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How to Invest in Sovereign Gold Bonds
Sovereign Gold Bonds are issued by the Reserve Bank of India (RBI) through three channels as banks, post offices, and stock exchanges . Investors can buy Sovereign Gold Bonds in denominations of 1 gram, 2 grams, 5 grams, 10 grams, 20 grams, 50 grams, 100 grams, 200 grams, and 500 grams as they want.
The subscription period for Sovereign Gold Bonds is usually for 5 days. During this time, investors can submit their applications to buy SGBs. The issue price of SGBs is determined by the RBI based on the market price of gold on the first day of the subscription period. Application Form Direct Link — Download
1. What is the difference between SGBs and physical gold?
The main difference between SGBs and physical gold is that SGBs are a paper-based investment with indian government security, while physical gold is a physical asset , its own risk. Its means, with SGBs, you do not have any worry about the storage or security gold, but you also do not have the physical possession.
2. Are SGBs a good investment?
SGBs can be good investment for people who want to invest in gold with gurantee but do not want to deal with the hassle of storing or securing physical gold. They are also good investment for people who want to take advantage tax benefits offered by SGBs.
3. How much should I invest in SGBs?
The amount you should invest in SGBs depends on your individual circumstances and investment goals. Generally, you should invest an amount that you can afford to lock away for 8 years.