SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of the Government of India.
- If there is a plan to invest in gold investing in SGBs will be a good option.
- There is a lock-in period of 8 years on maturity and also there won’t be any capital gain tax.
- Every year there will be an interest of 2.5% which will be added to the income. Hence, it will be taxable based on the income slab of the person.
- If SGBs are in Demat form and you want to sell them. Then it can be sold in the secondary market in exchanges. Provided if there is demand for it. If the bond gets sold by matching the demand and supply then the money will be encashed in 3 days.
- If these bonds are sold in the secondary market then brokerage charges are levied.
- SGBs can be used as collateral for loans.
- Also, SGBs are secure, as there are no storage hassles like physical gold.
- There is no expense ratio for exchange bonds. This means if money is invested in gold funds then the fund house will charge the expense ratio. If an investment is done in ETF then this also charges some expense ratio.
How to Invest:
- It can be applied from the Demat account.
- In FY22, RBI will issue 6 tranches of SGB. The first tranche will come on 17th May 2021 and will last till 25th May 2021.
- The issue price for Sovereign Gold Bond Scheme 2021-22 Series-I has been fixed at Rs. 4,777 per gram.
- It could be invested using net banking as well or else you can check with the relationship manager or customer care for more guidance.
Approach on how to invest in SGBs
- There are different tranche’s that are issued. The minimum allocation should be given to every tranche which is like SIP. It is not known when this issuance will be there.
- Normally Government of India comes in 2 tranches with 6 issuances each of SGBs in a year. So allocation could be done accordingly.
- On maturity of these bonds, they can be reinvested by the new bonds that the government will be issuing then.
- If not then SGB can be sold off as there won’t be any capital gain tax on it, as the tax is already paid on the interest.
- So the investment approach should be on regular basis.
Is gold investment important?
- If there is diversification in the asset class then there should be an allocation of 5%-10% in this asset class.
- It should not be invested from a Hedging point of view to beat inflation.
Normally whenever there is a stagnancy allocation could be done. It is seen that in 1-2 years this asset class gives good returns. Based on the asset allocation such kind of allocation needs to be done. SGBs are the best option to have some allocations in the gold as an asset class.