SGB vs Physical Gold: What makes Sovereign Gold Bond a preferred choice?

The Tranche-8 of the Sovereign Gold Bond (SGB) has been launched for FY 2021-22 at an issue price of Rs 4,791 per gram for offline investors and Rs 4,741 for online investors.

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With the gold prices currently hovering near Rs 50,000 per 10 gram (or Rs 5,000 per gram) range, the SGB investors would gain around Rs 2,000 per 10 gram (or Rs 200 per gram).

The Tranche-8 of the Sovereign Gold Bond (SGB) has been launched for the Financial Year (FY) 2021-22 at an issue price of Rs 4,791 per gram for offline investors and Rs 4,741 for online investors. The issue period for the SGB Tranche-8 is from November 29 to December 3, 2021.

With the gold prices currently hovering near Rs 50,000 per 10 gram (or Rs 5,000 per gram) range, the SGB investors would not only gain around Rs 2,000 per 10 gram (or Rs 200 per gram), but would also enjoy several other benefits over investments in physical gold.

The benefits of investments in SGB over physical gold are –

Storage Cost

Investors in physical gold need to spend on hiring lockers, taking insurance etc to keep gold safely and to recover losses in case of any theft, burglary etc. On the other hand, in the case of SGB, the gold is kept safely in the custody of the Government of India with the investors paying no charges.

Assured Interest

Unlike holding physical gold, the SGB investors not only need to spend any money to ensure safety of gold, but also get an assured interest of 2.5 per cent per annum paid on a half yearly basis.

Purity

While purity remains a cause of concern in the case of buying physical gold, the SGB provides a guarantee of 99.9 per cent purity of gold.

Capital Gain Tax

Unlike physical gold – where investors need to pay capital gain tax at the time of resale of gold or gold jewellery – SGB investors don’t have to pay any tax in case of gain on maturity.

Goods and Services Tax (GST)

Investors need to pay GST and making charges in case of investments in jewellery, while no GST is involved in case of investment in SGB.

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Apart from the above benefits, SGB can also be used as collateral for taking secured loans and can be traded in exchanges as well.

Talking on the SGB Tranche-8, Nish Bhatt, Founder & CEO, Millwood Kane International, said, “The price for the Sovereign Gold Bond Tranche-8 has been fixed at 4,791/gm. The Sovereign Gold Bond is an effective way of taking exposure to gold. There is no storage cost, as the holding format is digital, plus the investor stands to gain a 2.5 per cent per annum interest.

“The government has raised over Rs 31,000 crore of funds via the scheme. SGB is a favored route for the government to convert all gold investments into a digital mode, it will help keep the deficit under control and provide support to the currency,” he added.

Apart from providing a hedge against uncertainty at the time of Covid-19 pandemic, the prospect of gold looks bright also.

“After hitting a 9-month high earlier in the month, gold prices were trading in a narrow range for the past few sessions. The fears surrounding the new variant of virus has raised fresh concerns, leading to a softness in USD, pushing gold prices higher. But the improving economic scenario, inflation levels around the world, likely rate hikes to contain inflation is likely put pressure on gold,” said Bhatt.

“Moving forward, the US Fed meeting in December, the likely guidance on rates, economic data, and movement of the dollar will guide prices of gold in the near to mid-term,” he added.

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