Gold has been a universal symbol of wealth for centuries, traditionally used as a hedge against inflation, devaluation, or economic instability. Nowadays, investors have many options when it comes to investing in gold. They can buy physical gold, gold ETFs, or invest in Sovereign Gold Bonds (SGBs). However, investing in SGBs provides significant benefits. Here are five reasons you should choose SGBs over physical gold and ETFs.
Nish Bhatt, Founder & CEO, Millwood Kane International, said, “The latest tranche of the Sovereign Gold Bonds Series opened for subscriptions today, 12th February, and will remain available until 16th February. The issue price of the current series is set at INR 6,263 per unit by the RBI. This makes it a safe haven for investors seeking exposure to gold. Historically, investors have always looked of Gold for steady and strong returns. If we look at 2023 alone, despite geopolitical tensions, a weaker dollar, and volatility, Gold is currently trading near its high price lifetime of 62,240/-, which offers approximately 11.95% return by 2024. If we look at the long term, its price has more than doubled in the last 10 years. The SGB scheme an ideal investment opportunity for investors who are willing to continue their investments to seek capital appreciation in the long run.
1. Better returns: One of the main reasons for choosing SGBs is the potential for better returns. The value of physical gold only appreciates, while SGBs provide an annual interest of 2.5%, payable semi-annually, which increases the total value at maturity. Therefore, SGBs tend to yield higher returns than physical gold and gold ETFs.
Veer Mishra, Founder of PLUS, says, “Unlike private gold investments, SGBs have less default risk as the RBI backs them. Regardless of changes in gold prices, earn an annual interest rate of 2.5% for sure.”
2. No storage worries, risk: Physical gold requires safe storage, usually a locker or safe deposit box, which increases your costs. On the other hand, SGBs, available in digital form, eliminate these storage concerns and any associated costs.
“Unlike private gold investments, SGBs have less risk of default as they are backed by the RBI. Also, there is no need to fear theft or keeping real gold in storage. You can safely store your SGBs in electronic media,” Mishra said.
3. Liquidity: Although selling physical gold or gold ETFs may involve brokerage or fees, SGBs can easily be traded or sold on stock exchanges. It offers ease of liquidity to investors. In addition, SGBs have a fixed maturity period, during which investors receive the prevailing market rate. Mishra said, “To gain more freedom, sell your SGBs on the stock exchange after five years.”
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4. Tax benefits: In terms of taxation, SGBs are more efficient. Interest earned is taxable per income tax slab, but there is no capital gains tax at maturity for individual investors, unlike physical gold or gold ETFs, where long-term capital gains are collected when the gold is sold. after three years. Mishra said, “Capital gains on maturity are tax-free, unlike actual gold (Interest income is taxable).”
5. Assurance of purity: With SGBs, investors can secure the market value of gold. In contrast, with physical gold, there is always a risk of purity and high costs in terms of making charges.
Thus, SGBs can be considered when looking for a long-term gold investment, offering an excellent alternative to physical gold and gold ETFs. It provides better returns, zero storage concerns, liquidity, tax benefits, and purity assurance. It is a hassle free and efficient way to invest in gold.