Q. I am 35 years old. My net worth is around ₹10 crores. I am interested in sovereign gold bonds as a long-term investment for wealth preservation. Is this the right option for me? What are the benefits of these bonds?
Gold is an asset that can help diversify a portfolio and offer a hedge against inflation. Ideally, one should allot 5% to 10% of one’s portfolio to gold. However, gold prices can be volatile and may not always move in the same direction as other asset classes.
One can invest in gold in three different forms: Physical, exchange-traded funds (ETF) and sovereign gold bonds (SGB).
- Includes gold coins, bars, and jewellery, which the investor may buy and store.
- May involve additional costs for storage, insurance, and security.
- Purity of the metal and quality verification are important factors, which can impact resale value.
Gold exchange-traded funds
- ETFs invest in physical gold and track gold prices.
- Can be bought and sold on stock exchanges, making it a more liquid, easily tradable investment.
- ETFs offer the convenience of investing in gold without the need for physical storage or insurance.
Sovereign gold bonds
- SGBs are government-issued bonds denominated in grams of gold.
- Offer an annual interest rate of 2.5% on the investment amount in addition to potential capital appreciation from gold price movements.
- Have a fixed tenure of 8 years with an exit option after the 5th year.
- Returns are tax-exempt if the bonds are held till maturity.
- Like ETFs, SGBs offer investors the option to invest in gold without the need for physical storage or insurance.
Based on the information you have provided you may invest in SGB. It offers two distinct benefits:
1. Additional interest on the invested amount.
2. Tax-exemption from capital gains, if held till maturity.
You may start investing in SGBs without having to wait for new SGB issues. Bonds issued earlier are already listed and available on exchanges. You may buy those through your demat account, like you would buy an equity.