Why invest in Sovereign Gold Bonds rather than buying physical gold? Here are 8 things to know

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Updated: March 03, 2017 3:24 PM

If you want to earn higher returns than those you will get from physical gold, then hurry up as today is the last day for making a subscription to the Sovereign Gold Bond scheme. The Government of India, in consultation with the Reserve Bank of India, has already issued Sovereign Gold Bonds 2016-17–Series IV dated 27th February 2017.

It is safer to buy to sovereign gold bonds rather than investing your money in physical gold, which entails a lot of risks.

If you want to earn higher returns than those you will get from physical gold, then hurry up as today is the last day for making a subscription to the Sovereign Gold Bond scheme. The Government of India, in consultation with the Reserve Bank of India, has already issued Sovereign Gold Bonds 2016-17–Series IV dated 27th February 2017.

KYC norms are same as those required while buying physical gold. You need to provide identification documents such as Aadhaar card/PAN /Passport / Voter ID card. KYC will be done by any of the following – issuing banks, SHCIL offices, Post Offices or agents. No separate KYC will be needed for receiving the bank’s own customers.

Here are some reasons why sovereign gold bonds are superior to buying physical gold:

Safety
It is safer to buy to sovereign gold bonds rather than investing your money in physical gold, which entails a lot of risks.

Purity of Gold
As SGB are held in electronic form, there is no question of being an impure gold while there is always a doubt of purity holding a physical gold. Moreover, the variety of gold also changes moving from state to state.

Quantity Protection
The quantity of gold for which the investor pays is protected by the government authorities, unlike physical gold which you need to protect yourself, once getting it purchased from the shop.

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Storage Cost
The risks and costs of storage are eliminated in case of investing in Sovereign gold bonds, unlike physical gold where you need to especially take a locker in banks to keep it safe where you need to pay the locker fee also.

Risk Factor
There is hardly any risk in holding SGB as it is assigned in paper form while holding a physical gold bears a lot of risks. Irrespective of how much gold you keep in your locker, banks provide insurance only of up to Rs 1 lakh under the DICGC Act in the case of going through liquidation or any other issues faced by the bank. Keeping physical gold at home is undoubtedly a risky task.

Returns
SGB is priced for every single gram purchased when it comes to selling as it is free from issues like making charges and purity in the case of gold when held in physical form.

Wealth Tax
It is not applicable for SGB while it is applicable for holding physical gold where 1% on the total valuation of the asset is charged.

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Capital Gain
The capital gains tax arising on redemption of SGB to an individual has been exempted. However, in the case of long-term capital gains (LTCGs), the indexation benefits will be provided to any person on the transfer of bond while in the case of physical gold, LTCG is applicable after 2 years.

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