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Tata Capital > Blog > How Are SGBs Better than Investing in Physical Gold?

Wealth Services

How Are SGBs Better than Investing in Physical Gold?

How Are SGBs Better than Investing in Physical Gold?

Indians love investing in gold! And, why not – it’s an appreciating asset that can be bought easily. However, in the past few years, physical gold has not given significant returns. In fact, many who bought gold ornaments in the last six months got negative returns on them.

Although, individuals who invested in gold through a different route, namely SGB or Sovereign Gold Bonds, did not face the same fate, as they paid no making charges or other taxes on their purchase. No wonder why SGBs have gained prominence as perhaps a more reliable tool to invest in gold than physical gold itself.

Key Features of a Sovereign Gold Bond

  • In a nutshell, SGBs are RBI-backed securities denominated in grams of gold.
  • Rather than hoarding a substantial quantity of physical gold, investors can purchase SGBs only to redeem them for cash on maturity.
  • These bonds offer you a fixed rate of interest.
  • As the value of gold appreciates, your SGB’s value also goes up.
  • The minimum stipulated investment in SGB is 1 gram, and you can buy these bonds in multiples of 1 gram.
  • The tenure for an SGB is 8 years, but you can also liquidate yours in 5 years. 

Why is Investing in an SGB Better Than Purchasing Physical Gold?

Here are the four key reasons why you should choose an RBI Sovereign Gold Bond over purchasing physical gold:

Get the Same Amount of Gold at a Lower Price

The price of gold is fixed and regulated by the IBJA (Indian Bullion and Jewellers Association) and is usually the same for all. But, when you purchase physical gold, you also pay a high cost of craftsmanship, over and above the gold price. There is no craftsmanship element when you choose a sovereign gold bond. Thus, the total price at which you buy an SGB is lower than physical gold ornaments.   

Additional Read: Why Have Gold Prices Surged in the Past Year?

Earn Fixed Interest Over and Above the Non-Taxable Appreciating Gold Price

When you purchase physical gold, you only earn when the gold appreciates. Such in not the case with an SGB. Here, you earn through two components – one being the appreciation of gold itself, and the second is the interest rate you receive on SGBs. On Maturity, you receive tax-free appreciated gold money along with non-cumulative interest earned over the years. Only the non-cumulative interest component is taxable.

Rid Yourself of Gold Storage Woes

It is no secret that storing your gold safely is entirely your responsibility. Individuals pay for lockers or private safes at various financial institutions. Since an SGB is a paper document, you don’t have to worry about storing it in a safe place. In fact, if you misplace your SGB documents, you can simply reach out to RBI and request a copy.

Receive a Sovereign Guarantee

Since RBI issues SGBs on behalf of the Government of India, they come with a sovereign guarantee on payment of interests and principal repayment. Simply put, the Government assures that you will get your dues back without delay on maturity. The sovereign guarantee makes an SGB one of the safest ways to invest in gold.

Additional Read: Is Gold Still a viable investment option for 2021?

To Sum Up

Nurture your wealth by adding SGBs to your financial portfolio. If you need guidance before purchasing these bonds, turn to one of India’s leading financial institutions – Tata Capital Wealth. We extend a wide spectrum of bespoke investment management services bound to fit your financial objectives. 

To know more, reach out to us today!

Build Your Wealth with Expert Guidance from Tata Capital!

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