Investors constantly seek secure and reliable investment options as the financial markets evolve. Sovereign gold bonds (SGBs) have gained significant popularity among Indian investors due to their unique features and advantages. In this article, we will explore why SGBs have become a preferred investment choice and how online stock brokers and the best trading apps in India make it easier for investors to participate in this market.
Understanding the Sovereign Gold Bonds
Sovereign Gold Bonds (SGBs) are gaining popularity as investors seek secure and reliable investment options. These financial instruments, issued by the Reserve Bank of India (RBI), are denominated in grams of gold, making them convenient and accessible for participating in the gold market. SGBs eliminate risks associated with physical gold storage, providing investors with potential capital appreciation without the hassle. They also offer regular income through an annual interest payment of 2.5%, enhancing profitability. SGBs also offer liquidity and flexibility, as they can be bought and sold at market prices, allowing investors to manage their portfolios effectively. Additionally, SGBs offer tax benefits, as they are exempt from capital gains tax and Goods and Services Tax (GST) when held until maturity.
Sovereign Gold Bonds: What Are They?
The Reserve Bank of India has issued bonds or other sovereign gold bonds as an alternative to owning actual gold. Grams of gold are used to purchase these bonds. Some characteristics of sovereign gold bonds are listed below:
- Sovereign Gold Bonds (SGBs) are financial instruments issued by the Reserve Bank of India (RBI) as an alternative to physical ownership of gold.
- These bonds are denominated in grams of gold, with investors purchasing them using the equivalent amount.
- SGBs offer investors a convenient and secure way to participate in the gold market without needing physical storage.
- They provide potential capital appreciation based on the prevailing market price of gold.
- SGBs also offer an annual interest payment of 2.5%, enhancing the profitability of the investment.
- These bonds can be bought and sold at market prices, providing liquidity and flexibility to investors.
- SGBs come with tax benefits, as they are exempt from capital gains tax when held until maturity.
- They also enjoy exemption from India’s Goods and Services Tax (GST).
- The RBI regulates Sovereign Gold Bonds and provides a regulated and reliable investment option for individuals interested in gold.
Reasons to Invest Sovereign Gold Bonds
These are a few benefits of sovereign gold bonds:
Compared to other forms of gold investment, Sovereign Gold Bonds offer a cost-effective option. Physical gold comes with storage concerns and additional storage charges, whereas SGBs can be held in a digital form either as a certificate or in your Demat account. This eliminates storage costs, allowing you to save more.
Sovereign Gold Bonds provide notable tax benefits compared to physical gold. Gold is typically considered a non-financial asset, and if it is sold within three years, short-term capital gains tax must be paid. However, if gold is sold after three years, it is considered a long-term capital gain, subject to a tax rate of either 10% without index benefit or 20% with index benefit.
One of the significant advantages of investing in Sovereign Gold Bonds is the presence of assured interest. Unlike physical gold or gold ETFs, where there is no assured interest, SGBs provide an annual interest rate of 2.5% paid to investors.
Selling physical gold can be challenging, and additional charges may be involved, reducing the potential return on investment. However, Sovereign Gold Bonds offer ease of tradability without incurring significant losses. Investors can sell their SGBs at market price, providing liquidity and flexibility.
Elimination of Theft Risks
SGBs eliminate the risks associated with theft or scams in physical gold investments. Since SGBs are held in a non-physical, digital form, investors do not need to worry about the purity or security of their gold investment. SGBs are backed by the Reserve Bank of India (RBI) and the Government of India (GOI), providing a sovereign guarantee.
Indian investors have a safe and profitable investment alternative in the gold market thanks to sovereign gold bonds (SGBs). Investing in SGBs has been easier and more user-friendly thanks to the assistance of online stock brokers and the best trading app in India, including the Kotak Securities app. Investors may easily navigate various investment alternatives, including SGBs, using the Kotak Securities app’s smooth and straightforward layout. The Kotak Securities app enables users to maximize their profits from SGB investments by providing real-time information, specific portfolio management features, and simple buying and selling options. Utilise the Kotak Securities app to begin your SGB investment journey and realise the possibilities of this alluring asset class.