How is India investing in Gold in the new decade? Best option available?

 Gold has always been a sentiment and emotion for us Indians!! Agree?  All of our families are uncompromising when it comes to saving money for gold.

But is saving money for it the only way out? Oh wait, Gold Chit Funds or Gold saving schemes by the jeweler – they are your secondary go-to right!! But you know what, investing in Gold has now become more enticing. They earn you interests!! Yes, you read it right. Interest as returns for investing in Gold.

When you invest in physical gold like Gold jewelry, Gold coins\bars you need to bear with the making and wastage charges, storage costs, security, etc. But instead, if you invest in digital gold, you can save all these charges and also earn interest on that investment.

Experts suggest: “It’s always best to have 5 – 10% of your investment portfolio parked in Gold”.

Allow me to explain the recently acclaimed gold investment options. I particularly want to highlight about ‘Sovereign Gold Bonds’ in this blog.

Sovereign Gold Bonds (SGB)

Sovereign Gold Bonds are Government securities issued by the ‘Reserve Bank of India’ (RBI) on behalf of the government. These bonds are denominated in grams of gold and replicate the gold price movement in the market. SGBs don’t guarantee you payment as physical gold on maturity, but you can receive the equivalent amount (in cash) of gold’s price on that particular maturity date.

We as individual investors can purchase them in grams – a minimum of 1 gram to a maximum of 4 kgs. All of us know, Gold has been surging higher every year and it has grown so much that it’s less likely that the value falls. How cool is this!! You can carry Gold as a ‘Certificate’ thereby minimizing the risks of physical gold.

The tenure (i.e.) the maximum holding period is 8 years after which you can redeem it. You can’t hold it for a longer period. But if you want, you can exit after 5 years by selling it on the stock exchange.

Note: The mandatory lock-in period is 5 years.

There are 2 types of returns you can expect from SGB;

• Interest @2.50% per annum which is paid semi-annually (1.25% for 6months)
• Capital appreciation of gold – meaning the growth in the value of this yellow metal

Recently, demand for physical gold has plummeted and investors have made sharp turns towards digital gold investments. Once you purchase SGBs online, the interest collection and redemption happens through your verified bank account.

Why should you invest in SGB?

1. Safety – Since they are issued by the Government, you need not worry about risk. Also, you don’t incur storage costs, making charges or TDS, or even worry about theft.

2. Returns – Instead of physical gold which is sitting idle, SGBs earn you interest. The returns might be less compared to other investments, but still return is a return.

3. Ease of purchase – Since the purchase is made online, the process is eased for us. Also, the GOI allows a discount of INR 50 per gram if entirely transacted online. So you pay Rs.50 less for 1 gram.

4. Collateral security – Did you know: ‘Banks accept SGBs as a security against loans’. Yes! You can pledge your SGB and obtain a loan from the bank - similar to pledging physical gold.  

5. Traded on stock exchanges – If you want to redeem the bond before 8 years, you can sell it on the secondary market, but subject to capital gains tax.

How can you buy SGBs?

They can be applied both online and offline. Through the following entities;

·        Nationalized banks

·        Scheduled private and foreign banks

·        Designated Post Offices

·        Authorized Stock Exchanges

It’s best to check with your bank at first because most of them are authorized to sell. You can visit your bank branch (offline) or check your bank’s website to purchase online. Ahh! Don’t forget you get a discount of Rs.50 if you apply online.

What’s the taxation point?

The good news is SGBs are not subject to TDS (Tax deducted at source) and no Capital gains tax on maturity (end of 8 years).

But interest from this investment is taxable every year. Also if you wanna sell them off in the stock exchange even before maturity, capital gains tax would attract with indexation benefits.

Some important points to note:

·        If you own a DEMAT account, of course, you can hold SGBs there.

·        SGBs are a great hedge against inflation.

·        All Indian residents can opt to apply.

·        Even guardians can invest on behalf of minors

·        Nomination facilities are also available

·        The bond can be gifted\transferable to a friend\relative who fulfills the eligibilitycriteria.

·        The certificate of holding can be collected from the bank or directly from RBI through email.

Sovereign gold bonds are not the only schemes to purchase digital gold. There are other instruments like – Gold Mutual Funds (MFs), Gold Equity Traded Funds (ETFs), and Gold Mining Stocks.

Well!! I know that was too much information to process at once. Here’s some news if you are ready to purchase SGBs immediately. RBI has opened 6 tranches i.e. slots for SGBs between May to September 2021. Below is the schedule. 

Taken from The Economic Times

Here's a clipping from The Economic Times regarding SGB issue

Check with your banker or their website to apply immediately.

I hope this blog opened a new window to gold investing. If you have any questions, feel free to reach out, and before that check these FAQs on the RBI website.

If you would like to know about the other gold investing options, let me know in the comments below so that I could prepare a separate blog.

Until next time :)

Happy Investing!!

Disclaimer: This blog was meant to provide knowledge on Gold investments only. I am not a certified investment advisor. Please don’t take investing advice from anyone unless they are certified under SEBI guidelines.