To decide on the mode of investment, apart from the market price of physical gold and issue price of SGB, the investors should also consider the risks involved.
The price of gold has fallen sharply in the Indian markets, losing around Rs 1,800 per 10 grams in the last 6 days. In the process, at Rs 47,770 per 10 gram or Rs 4,777 per gram, the gold price in the national capital has fallen below the Sovereign Gold Bond (SGB) Scheme 2021-22 Series V issue price of Rs 4,790 per gram or Rs 47,900 per 10 gram.
For online investors, however, there is a discount of Rs 50 per gram on SGB, which brings the online SGB issue price down to Rs 4,740 per gram or Rs 47,400 per 10 gram.
If the price of yellow metal continues to fall, it would slide below even the online issue price of SGB by the time the Series V closes on August 13, 2021.
With the price of physical gold falling below the SGB issue price, which one would be the better investment option for the gold investors?
To decide on the mode of investment, apart from the market price of physical gold and issue price of SGB, the investors should also consider the risks involved and the resultant cost of holding the investment.
As there are risks of loss, theft, burglary etc, an investor needs to take a bank locker on rent to keep the physical gold safely. Apart from paying the locker rent, the investor may have to take insurance as well to ensure recovery in case of any loss during use of gold ornaments when taken out of the bank locker.
Other than the regular expenses needed to ensure security of physical gold, an investor also loses the making charges of gold jewelleries during resale, which is quite a substantial amount.
Sovereign Gold Bond
As gold is kept in safe custody of the issuer of the SGB, that is the Reserve Bank of India (RBI) on behalf of the Government of India (GOI), an investor needn’t worry about the safety of his investment.
Apart from spending nothing to ensure security of investment made in gold in the form of GOI Bond, the investor gets regular return instead as the GOI pays 2.5 per cent yearly interest payable semi-annually on the amount invested.
Apart from this, individual investors don’t have to pay any long-term capital gain tax on maturity of SGB, while on sale of physical gold after three years, investors need to pay 20 per cent tax after indexation and 4 per cent cess as well on the tax.