scorecardresearchInternational Women’s Day: Why should you invest in sovereign gold bonds

International Women’s Day: Why should you invest in sovereign gold bonds over physical gold?

Updated: 08 Mar 2023, 10:57 AM IST

Empower yourself with gold as this is the only thing that will betray your trust while the rest would fade with time.

International Women's Day: While everything loses its charm with time, gold continues to shine.

International Women's Day: While everything loses its charm with time, gold continues to shine.

This Women’s Day, how do you plan to pamper yourself? This question is pertinent considering how many people would also be celebrating Holi on March 08 this year. You cannot escape the lure of gold, which is why many women indulge in gold jewellery purchases during such festivities. Some also buy gold coins and ingots as assets for the future. 

However, irrespective of the glitter of gold that embellishes one and all, the important question that begets an answer is, “Is it worth investing in physical gold?”. The yellow metal has its charm but its cons too that mostly go unnoticed owing to ignorance.

The glitter of gold may not last for long

First, women pay extra for the gold jewellery they buy. This can be attributed to the high making charges, depending on the design intricacies and brand, apart from percentage profits. Moreover, gold jewellery cannot be counted among liquid assets owing to its low level of liquidity and the reluctance of most jewellers to factor in the amount spent on making charges. This disadvantage has refrained many people to include them as an integral part of their investment portfolios. 

Apart, the capital gains profit exceeding 1 lakh on the sale of gold jewellery is taxable. Loss on profits coupled with the taxation effect defeats the purpose of buying gold jewellery and locking them up as assets for future use.

Buying SGBs in place of physical gold

However, if you are still looking to invest in gold this International Women’s Day, you may participate in the Sovereign Gold Bond (SGB) scheme, the subscription of which would be open till March 10 this year. The Reserve Bank of India (RBI) launched the Series IV offering of the SGB Scheme 2022-23 today this year. This will be the last tranche for the fiscal year, post which you may have to wait till the next year to invest in this scheme. The RBI issues these SGBs as an alternative to physical gold, thus, saving you from the burden of buying and storing physical gold. 

You may buy this bond from any of the authorised post offices, Scheduled Commercial Banks, Stock Holding Corporation of India Limited, Clearing Corporation of India Limited and stock exchanges.

The details of the gold purchases are printed on a Certificate of Holding, a copy of which would also be with the bank. This means that neither you have to fear the loss of gold in case of theft nor have to pay extra for a bank locker to store this document. 

Also, this gold investment does not lie idle as investors earn an interest rate on these bonds of 2.50 per cent every year on the initial investments they make to buy these bonds. If you buy these bonds online, you can buy them at a discount of 50 per gram. The only disadvantage is its prolonged lock-in period that goes up to eight years, though the RBI allows investors to prematurely redeem their investments after five years from the date of investment. 

The purchase or sale of these bonds does not incur any tax, which is not the same as buying physical gold. Also, if you are willing to hold on to these bonds for the entire lock-in period, i.e., eight years. However, if you decide to redeem this bond before the due date, capital gains tax would be applicable. 

The value of these bonds rises with the price of gold in the market, which is why you may also keep these bonds as collateral while applying for a bank loan. The loan-to-value (LTV) ratio as stipulated by the RBI from time to time applies to all common gold loans available in the market.

This Women’s Day, dig into the world of gold that is neither yellow nor metallic. However, its allure remains the same as it allows you to not only invest for a better tomorrow but also ensure a valuable addition to your investment portfolio. 

Sovereign Gold Bonds (SGBs) are government securities denominated in gold with one gram as a basic unit.
First Published: 08 Mar 2023, 10:57 AM IST