Sovereign Gold Bond
What is Sovereign Gold Bond (SGB)?SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by the Reserve Bank on behalf of the Government of India.
The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.
| Particulars | Physical Gold | Gold ETF | Sovereign Gold Bond |
| Returns/earnings | Lower than the real return on gold due to making charges | Less than actual return on gold | More than actual return on gold |
| Safety | Risk of theft, wear/tear | High | High |
| Purity | The purity of gold always remains a question | High as it is in electronic form | High as it is in electronic form |
| Gains | LTCG after three years | Long-term capital gain post after three years | Interest 2.5% on the Bonds will be added in Income. LTCG arising on redemption of SGB to an individual has been exempted. TDS is not applicable on thebond |
| As loan collateral | Accepted | Not accepted | Accepted |
| Tradability or exit formalities | Restrictive | Tradable on Stock Exchange | Bonds are income-bearing investments that anytime traded freely in the open markets & redeemed from the 5th year with the government |
| Storage expenditures | High | Minimal | Nil |
| Income on holding period | No | No | Earn 2.50 % p.a. Interest paid quarterly |
In short, Gold Sovereign Bonds are new-age investment vehicles for those interested in the gold sector. So, if the above description matches your financial goals, you can go for this.
