Why is Sovereign Gold Bond the Best Way to Buy Gold?

The Buyt Desk

The Government of India in consultation with the Reserve Bank Of India will issue 6 tranches of Sovereign Gold Bonds(SGB) between May 2021 to September 2021. The  SGBs are government securities that are equivalent to holding physical gold. The minimum denomination of one unit of bond is 1 gram of gold. An individual or a HUF is permitted to buy a minimum of 1 gram and a maximum of 4 Kg gold in a fiscal year. When compared to the physical form of gold or any other electronic form of gold like an ETF or digital gold SGB has an edge over the other formats of gold. Let us look at why investing in SGB is considered better.

6 Reasons why you should invest in Sovereign Gold Bond

1. Who is selling SGB?

They have a sovereign guarantee and you purchase the gold straight from the government through RBI. You do not buy this gold from a company or a jeweller but from the government itself.

2. Additional Interest by RBI

The Reserve Bank of India gives an annual additional interest of 2.5% on the SGB. There is no other gold investment that will earn you an assured interest. You earn double the benefit on SGB. The first is the capital gains based on the price movement of gold and the second is the fixed additional interest paid semi-annually.

3. Price Movement of SGB

Did you know the first series of Sovereign gold bond which was launched in 2015 was priced at Rs 2684 per gram and the first series of 2021-22 launched in May 2021 is priced at Rs 4777 per gram.  Between 2015 and 2021 you can see how the price of 1 unit of SGB has moved.

4. SGB Vs Physical Gold

The purity of gold which is sold in SGB is od 999 purity. There is no fear that someone would sell you a lower quality of gold. You need not worry about making charges or pay anything extra to store this gold securely. SGB are in electronic form and they are never delivered in physical form. Once the bonds mature you redeem your money by selling the bond.

5. Tax on SGB

Though the interest earned on SGB is taxable as per the individual’s tax slab but the capital gains that you receive after the maturity period of 8 years is tax exempted.

6. Loan on SGB

You can use SGB as collateral for loans. The loan to value (LTV) ratio is equal to the ordinary gold loan.

Here is a chart for the dates of 6 tranches of SGB for 2021-22