Sovereign Gold Bonds (SGBs) are proving to be a lucrative investment option, especially for those who invested in 2017, when gold prices were around Rs 2,830 and Rs 2,987 per gram. The recent surge in gold prices has triggered concerns among SGB investors, who are now contemplating selling their holdings. The current gold price of Rs 1 lakh per 10 grams marks a significant increase of 26% since January and 33% over the past year. This has resulted in absolute returns of 221% for those who invested in SGBs between May and October 2017. Investors who purchased their bonds in April 2020, at a price of ₹4,639 per gram, can now opt for early redemption after completing five years, earning 101% returns. SGB investors have various trading options available to them, including selling their bonds on stock exchanges or taking advantage of the government’s repurchase scheme, which is available twice yearly after the fifth year. Upon completion of eight years, the bonds are redeemed, and the accumulated capital is returned to the investors. Financial experts recommend maintaining a gold allocation of 10-15% in investment portfolios, as it serves as a protection against inflation and provides stability during international conflicts. This allocation helps to mitigate the risks associated with investing in other assets and provides a hedge against market volatility. Some key highlights of SGBs include:
- Investment option for those who cannot buy gold physically
- Low storage and maintenance costs
- Capital gains tax free on maturity
- Additional 2.5% interest earned every year
- ₹50 discount on digital purchase
SGBs are also an attractive option for those who want to diversify their investment portfolios. By investing in SGBs, investors can reduce their exposure to market volatility and ensure a stable return on their investment. Financial experts, such as Nikhil Gupta, founder of Sage Capital, recommend maintaining a 10-15% gold allocation in total portfolio and retaining SGBs until maturity to maximize their advantages. Those holding a substantial portion of their investments in SGBs are advised to avoid further gold investments and utilize the returns for additional investments in debt and equity instruments.
“Sovereign gold bond is the best way to hold gold, as you get an additional 2.5% interest every year, there is a ₹50 discount on digital purchase while buying, there is no storage cost or expense ratio, and capital gains are tax free on maturity,” said Nikhil Gupta, founder of Sage Capital.
Key Points to Consider:
- SGB investors should maintain a 10-15% gold allocation in their portfolio
- SGBs provide a hedge against inflation and market volatility
- SGBs offer a stable return on investment with minimal risks
- Investors should consider selling SGBs if they have a substantial portion of their investments in SGBs
| Benefits of SGBs | Description |
|---|---|
| Low storage and maintenance costs | SGBs eliminate the need for physical gold storage, reducing maintenance and storage costs. |
| Capital gains tax free on maturity | The returns earned on SGBs are tax free on maturity, providing a tax benefit to investors. |
| Additional 2.5% interest earned every year | SGBs offer an additional 2.5% interest every year, providing a stable return on investment. |
| ₹50 discount on digital purchase | A ₹50 discount is offered on digital purchases, making SGBs more attractive to investors. |
In conclusion, Sovereign Gold Bonds (SGBs) are a valuable investment option for those who want to diversify their portfolios and mitigate the risks associated with investing in other assets. With their attractive features, SGBs provide a stable return on investment with minimal risks, making them an attractive option for investors looking to hedge against inflation and market volatility. By maintaining a 10-15% gold allocation in their portfolio and retaining SGBs until maturity, investors can maximize their advantages and ensure a secure return on their investment.
