Sovereign Gold Bond, benefits and Risk


The current condition of the investment markets and the upcoming recession have forced people to look for different other investment options other than stocks. Recently, cryptos came, and people thought it to be a good investment option but failed to prove its sustainability in the long term.

But then there comes Gold, and it has become an investment option for people through the ages, from kings saving money by buying gold to normal people investing in gold bonds on today's date. And these old sovereign bonds can be a great investment option to protect your money. 

What are sovereign gold bonds? 

Sovereign gold bonds are an option for you to invest in gold without buying physical gold. The Bonds are denominated in multiples of gram(s) of gold with a basic unit of 1 gram. The minimum amount of gold you can buy using this scheme is 1 gram. Maximum, you can buy up to 4 kg of gold as an individual, but as a trust or similar entity, you can buy up to 20 kilograms of gold. 

Benefits of gold bonds - 

So now let us discuss the benefits of investing in gold bonds - 

1. No storage problem -

One of the best advantages of investing in gold bonds is that you get the returns and profits of gold without storing physical gold. Keeping gold is also risky, and gold bonds eliminate that risk. 

2. Saves from inflation - 

Another big benefit of gold bonds is that it is safe during inflation too. When stock markets collapse due to high inflation, gold bonds are immune to it and will still perform better than other markets. 

3. Guaranteed by the government - 

The units, values and interests in the investment of gold bonds are decided by the government of India to kill the risk of any kind of fraud. 

4. Sure returns - 

One of the best things about gold bonds is that it yields an interest of 2.5% every year on the initial investment. 

5. Transferable - 

Another good thing about bonds is that they are transferable. These bonds can be transferred by executing a transfer instrument in accordance with the provisions of the Government securities act. 

Cons of investing in Gold Bonds -

Like every other thing in the world, Sovereign gold bonds also have their disadvantages. Let's discuss those too - 

1. You can only get free from capital gain tax if you hold these bonds for eight years. If you take the money back before eight years, then you will have to pay capital gain tax. 

2. Although SGBs are typically listed on stock exchanges after six months of issuance, there is relatively little secondary market activity. Either there isn't enough liquidity, or the prices are unfairly distorted.

3. One more con of investing in sovereign gold bonds is that these are only available in tranches, and you can only exit when the government opens the repurchase window after five years of launch. 

4. The long maturity time is another big problem. If you want to grow your investment within 2-3 years, then SGB is not a good option.

Image source: Google Images