Gold has been a universal symbol of wealth for centuries, traditionally used as a hedge against inflation, currency devaluation, or economic instability. Nowadays, investors have multiple 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 Sovereign Gold Bonds Series opens for subscriptions today, 12th February, and will remain available till the 16th February. The issue price of the current series has been set at INR 6,263 per unit by RBI. This makes it a secure avenue for investors seeking exposure to gold. Historically, investors have always looked to Gold for consistent and strong returns. If we look at 2023 alone, despite geopolitical tension, a weaker dollar, and being volatile, Gold is currently traded close to its lifetime high price of 62,240/-, offering approximately 11.95% return in 2024 already. If we look at the long-term, its price has more than doubled in the last 10 years. The SGB scheme is an ideal investment opportunity for investors willing to hold on to their investments to seek capital appreciation in the long run.”
1. Better returns: One of the top reasons for choosing SGBs is the potential for better returns. Physical gold's value only appreciates, while SGBs provide an annual interest of 2.5%, payable semi-annually, which adds to the overall maturity amount. Therefore, SGBs likely yield a higher return than physical gold and gold ETFs.
Veer Mishra, Founder of PLUS, says, "Unlike private gold investments, SGBs have less default risk because the RBI backs them. Regardless of changes in the price of gold, get an annual interest rate of 2.5% assured."
2. No storage worries, risk: Physical gold requires safe storage, typically a locker or a safe deposit box, which adds to your cost. On the other hand, SGBs, being in digital form, eradicate these storage worries and any associated costs.
"Unlike private gold investments, SGBs have less default risk because the RBI backs them. Also, there is no need to fear theft or keep actual gold in storage. You can securely save your SGBs on electronic media," said Mishra.
3. Liquidity: Though selling physical gold or gold ETF can involve brokerage or making charges, SGBs can be easily sold or traded on stock exchanges. This offers liquidity convenience to the investors. Moreover, SGBs have a definite maturity period, during which investors receive the prevailing market rate. Mishra said, "To gain more freedom, trade your SGBs on the stock exchange after five years."
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4. Tax benefits: In terms of taxation, SGBs are more efficient. The interest earned is taxable per income tax slab, but there is no tax on capital gains at maturity for individual investors, as opposed to physical gold or gold ETFs, where the long-term capital gains are collected if the gold is sold after three years. Mishra said, "Capital gains at maturity are tax-free, in contrast to actual gold (Interest income is subject to tax)."
5. Purity assurance: With SGBs, investors can be assured of the market value of gold. In contrast, with physical gold, there is always the risk of purity and high costs concerning making charges.
Thus, one can consider SGBs if looking for long-term investments in gold, offering a superior alternative to physical gold and gold ETFs. It gives better returns, zero storage concerns, liquidity, tax benefits, and purity assurance. It is a hassle-free and efficient way to invest in gold.
