Sovereign Gold Bond: Why PPF, bank FD investors should think of investing in SGB too — explained

Sovereign gold bonds (SGB), public provident fund (PPF), and bank fixed deposits (FDs) are widely recognised as secure investment options. Each of these choices offers a stable, long-term investment avenue, making the decision between them somewhat challenging.

Sovereign Gold Bonds are issued by the Reserve Bank of India on behalf of the Government of India. These bonds are available in multiples of grams of gold, with the basic unit being 1 gram, and the minimum investment permitted is 1 gram. Investors in sovereign gold bonds receive an annual interest rate of 2.50%. These bonds have a maturity period of eight years, with an option to exit after the fifth year.

“Considering that the holding period is eight years, Sovereign Gold Bonds has several advantages over PPF and Fixed deposits,” said Puneet Maheshwari, Director, Upstox

Gold prices adjust according to inflation over a longer period. Additionally, the interest paid by the RBI is assured, and there are also tax benefits as there is no capital gains tax, making them a superior choice for investors seeking stability and growth in their portfolios, added Puneet Maheshwari

“Sovereign Gold Bond (SGB)can be an ideal investment avenue for long-term investors who are willing to hold onto their investments for 5-8 years. One of the significant advantages is that there is no tax on the capital gains if the investment is held till maturity. Apart from this, SGB provides an additional assured annual interest of 2.50% until maturity, over and above gold returns. These benefits are unique to SGBs and are not available in any other form of gold investments,” said Pankaj Shrestha – Head of Investment Services, at Prabhudas Lilladher Pvt. Ltd. basis the Sovereign Gold Bond (SBG).

SGB has become a more attractive investment option after the withdrawal of Long-Term Capital Gains (LTCG) benefit from Gold ETF & Gold Mutual Funds w.ef. 1st April’23, he added.

Gold serves as a secure haven within the realm of asset classes. Experts recommend allocating 5% to 10% of a portfolio towards gold, as it acts as a hedge against the volatility experienced in equity markets. “Investing in sovereign gold bonds (SGBs) is the optimal choice for individuals seeking exposure to gold over an 8-year investment horizon,” said Gurmeet Singh Chawla, Director at Master Capital Services Ltd.

Historically, it has provided satisfactory returns. For instance, the SGB 2016-Series I, reaching maturity on February 8, 2024, yielded an XIRR of 13.6%, or an impressive absolute return of 163%, to investors, as per the Director at Master Capital Services Ltd.

Benefits of investing in SGB

1)Investing in SGBs can help you diversify your portfolio.

2)Backed by the Reserve Bank of India, these gold bonds boast enhanced credibility.

3)They offer an appealing return rate

4)SGBs appreciate in capital as their value increases with the rise in the price of gold

5)Additionally, the interest earned on SGBs is exempt from income tax.

1)It takes 15 years for the PPF account to mature.

2)Interest rates might change every quarter.

3)The most you can put into a PPF account is set at Rs. 1.5 lakh. For the past few years, the government has not raised this restriction

1)According to Amit Gupta, although fixed deposits are considered to be a safe investment, there is always a risk that the bank could go bankrupt. If this happens, you may lose all or part of your investment.

2) An investment’s return should ideally exceed the rate of inflation, even after taxes are taken into consideration. The interest rate on a fixed deposit, however, typically tends to be less than the rate of inflation in most circumstances.

3)The interest you earn on a fixed deposit is taxable income.

Another drawback of fixed deposits is that the interest rate is set at the time of application.

4)The disadvantages of investing in fixed deposits are that fixed deposits offer a fixed rate of interest, which is typically lower than the returns offered by other investment options.

SGB Tranche 2023-24 Series IV opens for subscription

The 5-day subscription window for the latest tranche of Sovereign Gold Bonds (SGB) 2023-24 Series IV opened on February 12. Investors can seize this opportunity to invest in gold till February 16, 2024.

Subscription Period: February 12 to February 16, 2024 (5 days)

Issuance Date: February 21, 2024

Issue Price: Rs. 6,213 per gram of gold

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.