All you need to know about Sovereign Gold Bonds and should you invest?

 

In today’s world, it is very difficult to rely on your salary as your only financial source of income. With the gradual inflation occurring around the world and the increasing cost of living, it would be difficult to live off only on one’s salary. Hence people look for part-time jobs or investments to make some extra money. While this is a wise decision, many make the mistake of falling prey to scams or making investments that only generate minimal returns. The lack of awareness about such scams and the lack of transparency in such shady investments causes people to make wrong financial decisions. So what is the safest and best form of investment? One of the best, most stable and secure forms of investment is the Sovereign Gold Bonds scheme.

What is the Gold bond scheme?

Many people, especially in India, purchase physical gold in the form of gold jewelry, gold coins and gold bars as a part of their long-term investment plan. But this poses a set of troubles which many people fail to consider. The risks of investing in physical gold is a greater liability that needs to be considered, despite the high returns. There is an alternative to investing in physical gold. That alternative is the Sovereign Gold Bond scheme. Sovereign Gold Bonds (SGBs) are government securities that are denominated in grams of gold, thus serving as a substitute for holding and investing in physical gold. Investors can purchase Sovereign Gold Bonds, which will be redeemed in cash on maturity. The Sovereign Gold Bond scheme is issued and regulated by the Reserve Bank of India, on behalf of the Government of India. Hence it is a credible investment and not something to be worried about turning into a hoax. The minimum investment is equivalent to the purchase of 1 gram of gold, whereas the maximum investment for a fiscal year is 4 kg.

 Interest Rate and Tenure of Investment

It takes 8 years for a Sovereign Gold Bond scheme to mature and investors can choose to opt out after 5 years have completed. The best thing about investing in the Sovereign Gold Bond scheme is that it has a fixed rate of interest. The rate of interest is 2.50 percent every year over. The interest is paid every six months. Hence the Sovereign Gold Bond scheme is an ideal form of investment. What’s more? Gold investors have the option of selling the bonds anytime on stock exchanges. Hence this form of an investment is quite advantageous and flexible compared to others.

Why you should invest in Gold bond schemes rather than in physical gold

Investing in Sovereign Gold Bond schemes is a wiser option to investing in physical gold. This is largely because handling physical gold is increasingly risky and variable. Here are the top reasons why you should consider investing in Sovereign Gold Bond Schemes rather than in physical gold.

• A matter of Safety:

It is very difficult and risky to protect physical gold. Being a physical material, it is subject to the risk of theft, whereas Sovereign Gold Bond schemes are immaterial.

• Fixed rate of interest:

Sovereign Gold Bond schemes have a fixed rate of interest which contributes towards a stable revenue, whereas the same cannot be said in the case of physical gold.

• Tax benefits are a yes:

Tax benefits can be enjoyed on investing in Sovereign Gold Bond schemes. Whereas the tax for physical gold investments is slightly high.

• Assurance of purity:

Investors are assured of the market value of gold and don’t have to worry about purity affecting the investment in the case of Sovereign Gold Bond schemes.

• Sovereign Guarantee on Redemption:

Both redemption and premature redemption amount for Sovereign Gold Bond schemes are guaranteed.

• Hassle-free exit options:

One can choose to exit from Sovereign Gold Bond schemes after 5 years of investment and obtain a decent return from it.

• Additional option of selling on stock exchanges:

Rather than waiting for Sovereign Gold Bond schemes to mature, one also has the choice of selling it on stock exchanges at any time.

• Borrowing loans:

It is much easier to borrow loans thanks to investing in Sovereign Gold Bond schemes.

• Making charges:

Sovereign Gold Bond schemes do not suffer from making charges which is one of the limitations of investing in physical gold.

• Wastage charges:

Sovereign Gold Bond schemes do not suffer from wastage charges which is one of the limitations of investing in physical gold.

• Risk of loss:

Due to the instability of physical gold investments, the risk of loss is higher. But this is not the case for Sovereign Gold Bond schemes.

• Locker maintenance charges:

Unlike investing in physical gold, Sovereign Gold Bond schemes do not require to be stored in bank lockers and hence do not have locker maintenance charges.

• Sentimental attachments:

In India, people may be hesitant to invest with physical gold in the form of jewelry due to the sentiments attached to it. But Sovereign Gold Bond schemes are immaterial and hence have no sentiments attached to it.

• Steady income:

Unlike investing in physical gold, which is unstable, Sovereign Gold Bond schemes are a more stable form of investment.

• Impacted by international market:

Physical gold investments are influenced by the international market, but Sovereign Gold Bond schemes are issued and managed by the Reserve Bank of India, on behalf of the Government of India.

 

Hence it is wiser to invest in Sovereign Gold Bond schemes, which are more convenient, safer and steady, rather than in physical gold, which is a risky investment.

 

Who is eligible to buy gold bonds?

The Sovereign Gold Bonds scheme is available only to resident Indians. Non-Resident Indians (NRIs) and Foreign Entities are not allowed to invest in gold bonds in India. All resident Indians, HUFs (Hindu Joint Families) and registered Indian entities (such as a trust, universities, private or public limited companies, etc.) can invest in Sovereign Gold Bond schemes.

 

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