Here’s why you should invest in Sovereign Gold Bonds

Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold and are issued by the Reserve Bank of India (RBI). These bonds allow you to buy gold in paper or demat form, rather than in physical form.

Key features of SGBs

• An affordable and convenient way to invest in gold
• Investments in Sovereign Gold Bonds must be at least one gram. An individual may invest a maximum of 4 kg, while trusts and related entities may invest a maximum of 20 kg
• SGB returns are a combination of interest and capital appreciation
• Interest is fixed at 2.5% for the financial year
• An investor receives the interest payment half yearly
• The tenure of SGB is for eight years. However, premature redemption is allowed after fifth year
• The selling price of SGB is based on the simple average closing price of 999 purity gold of the previous three days. The prices are based on those published by the India Bullion and Jewellers Association Limited.

Benefits of an SGB investment.

• As it is government security, it is a relatively safe investment avenue
• Redemption and interest payouts are assured at market value
• You can also apply online for SGB through the websites of listed commercial banks. A benefit of online investment in SGBs is that the issue price is Rs. 50 per gram less than the nominal value
• The National Stock Exchange and the Bombay Stock Exchange allow you to trade SGBs easily, but only if they are held in demat form
• You can use SGBs as collateral for a loan

Drawbacks of an SGB investment

• This is a low-risk, low-return investment instrument. Investing in SGBs might not yield high returns, when compared to other investment avenues like equity mutual funds
• If the market price of gold declines, there is a risk of capital loss
• Since it has a lock-in period of five years, it is not a suitable investment if you are looking for liquidity in near future
• SGBs do not provide diversification to your portfolio. For investors looking to diversify their portfolio, a gold mutual fund or a gold Exchange Traded Fund (ETF) could be a better option

Are SGBs for you?

It is extremely crucial to understand what are SGBs, their advantages and disadvantages and are they beneficial for your long-term goals. While taking investment decisions, it is essential to select the right investment instrument so that you can fulfil your financial objectives.

A better way to reach your financial goals is to explore investment options through a financial advisory, who can curate personalised solutions based on your objectives and risk appetite.