WITH SUBSCRIPTION TO the next tranche of sovereign gold bonds (SGBs) open from December 18 to December 22, investors should look at investing in these bonds and lock-in for eight years to earn tax-free returns. The issue price is fixed at `6,199 per gram of gold and investors will get a discount of `50 per gram on online purchase through digital payments. The final tranche for this financial year will be open for subscription from February 12 to February 16.
Given the recent macroeconomic developments, gold will remain a preferred asset class and continue to attract investment as a proven hedge against other asset classes, say experts. Individuals should buy these bonds in each tranche which will be akin to investing in a systematic investment plan (SIP). The bonds come with a government guarantee on the principal investment. When combined with a SIP-like strategy, SGBs offer a disciplined and tax-efficient way to invest in the precious metal.
An investor will have to hold the bonds for eight years and will have an exit option from the fifth year which can be exercised on the interest payment days. The government had launched SGBs as a substitute to investing in physical gold and reducing the country’s gold import bill. These bonds are issued by RBI in multiple tranches throughout the year and investors can also buy the bonds from the secondary market. Till now, the government has issued 65 tranches of SGBs and the outstanding stock is about 120 tonnes of gold, which is worth `57,000 crore of investments.
An investor can buy SGBs digitally through the websites of scheduled commercial banks, bank branches, designated post offices, National Stock Exchange and Bombay Stock Exchange. Investors who are looking to buy SGBs in the secondary market should check the prices as the liquidity in exchanges for this asset is low.
Abhijit Roy, CEO, GoldenPi, says SGBs are an appealing option for investors seeking to incorporate gold into their portfolios while improving predictability in their investment strategy. “SGBs offer a fixed 2.5% annual interest income, which improves the overall returns, acts as a reliable source of income and produces yields of almost 20% over an eight-year period,” he says and adds that another big benefit that could result in larger after-tax returns for SGB holders is the capital gains tax exemption upon maturity.
Similarly, Harshad Chetanwala, co-founder of MyWealth-Growth.com, says individuals should invest in SGBs as these are one of the best ways to earn higher returns on gold investments.
Optimal exposureThe optimal gold exposure in an individual’s overall portfolio is determined by his risk tolerance and investment objectives. “A recommended range for conservative investors with a lower risk tolerance might be 5-10% of the portfolio. On the other hand, more risk-averse investors may choose to allocate a higher percentage, such as 15-20% or even more,” says Roy.Investing in physical gold comes at a cost such as making charge and storage and even wastage charge when sold. Even gold ETFs have an expense ratio of around 1%. Moreover, in both physical and gold ETFs, investors do not earn any regular returns. Investing in SGBs can help investors to diversify their portfolio, earn regular returns, get the appreciation value of the metal and even gain from the tax benefits.