Advantages of investing in Sovereign Gold Bonds over physical gold

[Abhilash Rathore]

Since time immemorial, gold has been one of the most desired possessions in India. It has also been a key investment for households in the country. However, the traditional way of investing in physical gold has several challenges. Today, you can own gold in multiple ways. It is available in physical forms and as paper. In its physical form, you can buy jewellery, coins, bars, etc.

On the other hand, paper gold is available in various forms, including Sovereign Gold Bonds. Let us learn more about them and explore the benefits of investing in them over physical gold.

About SGBs

When investing in Corporate Bonds, you should know that public and private corporations issue them. On the other hand, the RBI issues SGBs on behalf of the Government of India. They are government securities and are denominated in grams of gold. SGBs track the market price of gold and provide the perks of appreciation of the prices of gold without the challenges associated with storing physical gold.

SGBs are an efficient method of investing in gold without holding it physically. When you opt for them, you also do not need to go through the strain of safekeeping the physical asset. Investors who are eligible to invest in SGBs include:

• Individuals
• Hindu undivided families
• Universities
• Trusts
• Charitable institutions

Individual investors with subsequent changes in residential status from resident to non-resident can continue to hold SGBs until maturity or early redemption.

Benefits of SGBs over physical gold

The GoI launched the Sovereign Gold Bond scheme in 2015. Investing in SGBs offers various benefits over physical gold. A few of these include:

• No risks of loss

Unlike physical gold, SGBs are dematerialised. Hence, they are a safe investment option. There are no risks of loss involved in the case of SGBs due to hazards of safekeeping or storing gold. Dematerialised holdings are also easier to manage and monitor. This enables you to track your investments easily. Besides, SGBs are free from issues like making charges and purity, which is the case when buying gold as jewellery.

• Returns on investment

When you opt for SGBs, you are assured of the market value of gold at maturity. In addition, you also earn periodical interest at an annual interest rate. This can make SGBs a good choice when you want regular income. On the other hand, when selling physical gold, the returns are based on the market price of gold. However, you only enjoy value appreciation and no interest.

• Tax benefits

Taxation norms favour Sovereign Gold Bonds. This is because the capital gains are exempted from tax. On the other hand, the same gains from physical gold are taxable in the hands of the investor.

Conclusion

While SGBs offer several benefits, investing in physical gold or SGBs usually depends on your financial goals and choice. The ideal solution could be a blend of both. You may want to diversify your portfolio with a mix of physical gold and SGBs. This could offer you the best of both worlds.