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Tag: sovereign gold bond

  • Why is SGB the best option to invest in Gold?

    Why is SGB the best option to invest in Gold?

    Alongside China, India is by far the world’s largest importer and consumer of gold. Gold is one of the most preferred investments in India. With over 95% of Gold being imported, the yellow metal turns adverse to India’s forex reserve. To address this problem, Government of India launched Sovereign Gold Bonds (SGBs) in 2015 under the ambit of the Gold Monetisation Scheme.

    The objective of the scheme was to cut down the demand for physical gold and shift a part of the domestic savings (used for the purchase of gold) into financial savings. 

    SGBs are government backed securities, issued by the Reserve Bank of India (RBI) on behalf of the Indian government. Investors have to pay the issue price and the bonds will be redeemed upon maturity.

    How to buy Gold Bonds? 

    SGBs can be ordered through the Net-banking option of banks, from designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL) or even through authorized stock exchanges. Investors can also download the application from RBI’s website or through bank sites.

    Sovereign Gold Bond
    Sovereign Gold Bond

    Who can invest through SGBs?

    “Residents” in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGBs. Eligible investors include individuals, HUFs, trusts, universities and charitable institutions. Joint holding is allowed in SGBs. For minors, the application has to be made by his/her guardian(s).

    Can NRIs invest in SGBs?

    Only residents of India are eligible to invest in SGBs. Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGBs until early redemption/maturity.

    SGBs vs Physical gold


    SGB vs Gold
    • SGBs offer a superior alternative to holding gold in physical form since the risks & costs of storage are eliminated. SGBs are free from issues such as making charges and purity in the case of gold held in the form of jewelry. 
    • The flip side of SGBs is their fixed lock-in period. SGBs are issued for a fixed term of eight years with an option to redeem them from the fifth year onwards at the RBI buyback window.
    • Also, if gold bonds are sold prematurely on the stock exchange before three years, then they will attract short-term capital gains tax (STCG) as per the investor’s slab rate. But if they are sold after three years, then long-term capital gains tax (LTCG) of 20 per cent will be applicable, and the investor will also get indexation benefits. And, if one were to hold the bonds until maturity, or until the RBI buyback window, then capital gains tax will not be applied. 

    Price of Sovereign gold bond

    The Reserve Bank of India (RBI) fixes the issue price per gram for each tranche by calculating the simple average of the closing prices of 999 purity gold as disclosed by Indian Bullion and Jewellers Association (IBJA) on the last three working days before the week marked for the subscription.

    Our Take

    Buying gold jewelry isn’t an investment. But if the idea is to remain invested in Gold, then SGB is the best option in the market. Along with capital gains, investors are paid interest rate. NO GST during purchase and NO Capital gains tax on sale. And also, India need not shell out dollars from its reserve. It’s a win-win situation.

  • What are GOLD ETFs? When should you buy them?

    What are GOLD ETFs? When should you buy them?

    For centuries gold has proven to be a safe investment bet. Indians, when compared to people in the rest of the world, have felt great comfort when investing in this yellow metal. Often, this investment is in the form of jewelry and not other digital forms like Gold ETFs or Bonds. Although, investment in physical gold has created other challenges for us. As India does not produce gold in significant quantities, we have begun to rely on imports.

    People began to accumulate Gold for safety purposes as their Long-term investment strategy. Some professionals today say that Gold is a great tool to hedge against inflation. Large scale gold imports, especially for investment created a higher Trade Deficit (this happens when imports far exceed exports). When this happens the rupee comes under pressure and tends to weaken. This sets off many more problems for the Indian economy.

    To avoid this situation and push people to look beyond investing in just Physical Gold, the Government of India came out with Gold Exchange Traded Funds (ETFs) apart from Sovereign Gold Bonds (SGB).

    Now….What is a Gold ETF?

    A Gold ETF is an exchange-traded fund that aims to track the domestic price of physical gold. In other words, Gold ETFs are units representing physical gold either on paper or in dematerialised forms. Typically, one Gold ETF is equal to 1 gram of gold. Meaning, 1 unit of Gold ETF is backed by an equivalent quantity of physical gold. Gold ETFs give you a combined benefit of investing in Stocks as well as Gold.

    They are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE). And just like the stock of any company that can be bought & sold continuously at market prices, Gold ETFs can be treated the same way.

    However, when you actually sell your Gold ETF, you don’t get physical gold, but receive the cash equivalent of the market price.

    How are Gold ETFs Beneficial to you?

    • Transparency – The biggest benefit is the transparency in pricing as it is directly linked to the price of gold. 
    • Cost – ETFs incur far lower expenses compared to physical gold where one ends up paying wastage charges, making charges, safe storage cost etc. 
    • Safety – Unlike physical gold the investor need not worry about the investment’s safety. ETFs not only fetch the same return as physical gold but are also a lot safer than its physical form as there is no fear of theft or depreciation.
    • Loan – Gold ETFs can be placed as a collateral to secure loan from any financial institution.

    Where can you purchase Gold ETFs?

    Gold ETFs can be purchased through a stock broker like Zerodha, Sharekhan and other investment apps. You will have to pay a small brokerage or fund management charges while buying or selling Gold ETFs. As  mentioned earlier the overall cost is much lower than what an investor incurs in buying physical gold and there is NO better time to invest in Gold than today.

    Gold ETFs Vs. SGB

    Many of you might have a pondering question on how Gold ETFs are different from SGBs. Well here’s our take of the same. 

    gold etfs

    The advantage that ETFs have over SGB is that they are more liquid. They can be sold at any given time like stocks. An investor need not hold onto their investment for a fixed period. Although ETFs are taxable.

    If you prioritize your investments based on safety and liquidity, then Gold ETFs are your safe haven.