Why Sovereign Gold Bond is the best option to invest in gold

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Updated: Jan 20, 2016 1:32 PM

Experts suggest that Sovereign Gold Bonds scheme score over physical gold as well as exchange traded funds (ETFs) in terms of capital appreciation and interest rates.

gold-8-660Sovereign gold bond scheme: The issue price set for this tranche is Rs 2600 per gram. The issue price of these bonds is calculated by averaging the previous week’s closing price of gold of 999 purity.

The Reserve Bank of India on behalf of the government has come out with the second tranche of Sovereign Gold Bonds. The issue will remain open till January 22 and bonds will be issued on February 8.

The issue price set for this tranche is Rs 2,600 per gram. The issue price of these bonds is calculated by averaging the previous week’s closing price of gold of 999 purity. The first issue was priced at Rs 2,684 per unit.

Investors will get additional interest at the rate of 2.75 per cent per annum on the initial deposited amount. Investors will continue to have full exposure to gold prices to the extent of amount deposited.

Experts suggest that Sovereign Gold Bonds scheme score over physical gold as well as exchange traded funds (ETFs) in terms of capital appreciation and interest rates.

Elaborating on how the Sovereign Gold Bonds are better than physical gold, Vidya Bala, head of mutual fund research at Fundsindia.com said “Sovereign Gold Bonds are far superior than physical gold in terms of capital appreciation and fixed income. Also holding cost is nil in the case of Sovereign Gold Bonds compared with the physical gold which people prefer to keep in lockers for safety measures.”

The minimum permissible investment will be two grams of gold with the maximum 500 grams per person in a financial year. The certificate indicates the amount, date and the quantity of gold bought by the investor. The interest earned on gold bonds would be taxable and capital gains tax shall be levied as in case of physical gold. As the bonds will be listed on the exchanges, investors will get an option to exit if volumes traded on the exchange are good.

Sudip Bandyopadhyay, managing director and CEO, Destimoney Securities, said, “Sovereign Gold Bonds are a superior option for investors looking to invest in gold. Investors are further incentivised with a 2.75 per cent annual interest at the time of maturity. This product therefore gives a financial product-like return tagged with the appreciation of a gold.”

According to ICICI Securities, Sovereign Gold Bonds offer the best alternative to take exposure to gold as it offers additional interest. There are no annual recurring expenses as compared to gold ETFs (expense ratio in ETF is around 1 per cent) and no storage hassle like those involved in physical gold holding.

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