Investing in SGB | Image Resource: appreciatewealth.com

The SGB was launched to help investors benefit from the fluctuations in gold prices without having to buy/sell physical gold. The bonds are guaranteed by the Government of India and have become a popular investment option for individual investors.

These gold bonds offer various features that are not offered with other types of gold investments. The bonds are called ‘Sovereign Gold Bond’ and there are several reasons to invest in them.

Reasons for investing in SGB

• When compared to physical gold the SGBs are more cost-effective. When you buy or sell gold jewellery you lose 15 – 20% of your money in making charges.
• You can buy gold in the form of bars and coins but it requires storage, insurance and safety. On the other hand, SGBs can be held as physical certificates or in the Demat account.
• Even the gold ETFs are held in the Demat account but there is a cost attached to them. The gold ETFs are bought at the current price of gold units and you have to pay transaction cost every time you enter and exit. The annual AMC cost of 1% also gets debited. The SGB does not have such costs and they are issued by the Government at a discounted price to the average market price.
• When you store gold as ETFs or in physical form there is no assured regular income. You can make profits only if the market price of gold goes up. The SGB pays an interest of 2.50% to the investors annually. Investors can benefit from price appreciation if the gold price goes up. There is no default risk in the bonds and the redemptions and interest payments are guaranteed by the Government.
• When compared to physical gold the SGB is also more tax-efficient. Gold is traded as a non-financial asset with a holding period of 3 years. If you sell your gold within 3 years then are liable for short-term capital gains tax. If you sell gold after a period of 3 years then you get long-term capital gain. The gain is taxed at the rate of 10% without indexation and 20% if the benefit of indexation is chosen. In SGBs, the redemption of the bond is totally tax-free. The interest on SGB is taxable as per the applicable tax rate.
• Appreciate offers a trading app to trade in shares, bonds, ETFs and mutual funds online. It also offers global investing.