Sovereign Gold Bonds (SGBs) do not have making charge or goods and services tax (GST), unlike gold coins and bars. However, there are many other benefits to investing in SGBs
Although Sovereign Gold Bonds are considered for assured returns and safe investment, they have several other advantages. In a Twitter post, the State Bank of India (SBI) has listed six compelling reasons to purchase SGBs that can help you decide if you are still unsure.
To encourage investors to invest in SGBs, SBI has come out with a list of benefits of such an investment like assured returns, no storage hassles, tax advantages and collateral for loans.
It came after the government recently opened the subscriptions for its Sovereign Gold Bond Scheme (Series I) 2023-24 from June 19 to 23, 2023, at Rs. 5,926 per gram.
SBI has posted a link on Tweeter to buy SGBs online, with the caption “Get assured returns and safety on your investment with Sovereign Gold Bonds.”
Investors can buy SGBs through demat accounts or via online banking. Those who buy them online will get a Rs. 50 discount per gram, bringing their effective price to Rs. 5,876 per gram.
Here’re SBI’s six compelling reasons to buy SGBs.
Six Reasons To Invest In SGBs
Assured Returns
SGBs offer assured annual return of 2.5 per cent, payable semi-annually on the nominal value. Investors also have the flexibility to redeem the bonds after the fifth year. The minimum investment is one gram, and the maximum is 4 kg per individual. SGBs have a maturity period of eight years, with an option for early redemption after the fifth year.
No Storage Hassle
Unlike physical gold, SGBs do not require any storage facility, making them a more secure investment option.
No Capital Gains Tax
Investors can benefit from tax advantages when investing in SGBs. While the interest earned on SGBs is taxable, no capital gains tax is applicable upon redemption. Further, investors can enjoy indexation benefits if they make long-term gains on transferred SGBs.
Liquidity
Despite low liquidity compared to physical gold, SGBs can be sold, providing investors with an exit option. The bonds are tradable on stock exchanges within a fortnight of issuance, as per RBI's notification.
Collateral To Loans
Sovereign gold bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to the ordinary gold loan mandated by the Reserve Bank of India (RBI) from time to time. Bond’s lien shall be marked in the depository by the authorised banks.
Cost Advantages
Unlike gold coins and bars, SGBs are not subject to goods and services tax (GST), and there are no making charges. When you buy digital gold, you need to pay 3 per cent GST just like physical gold. This makes SGBs more economical choice for investors compared to physical or digital gold.
Potential Returns
When the Sovereign Gold Bond 2016 (SGB 2016 – I) was redeemed in August 2022, it gave investors an absolute return of nearly 99 per cent per unit or one gram of gold and an annualised return of 10.34 per cent. Gold investments, including SGBs, provide a safe investment avenue for investors, especially during inflation, global economic uncertainty, and underperforming stock markets. Gold prices have demonstrated stability, with the global price increasing by approximately 10.4 per cent over the past year, according to the World Gold Council.