Should You Think About Investing In Gold Bonds?
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The gold prices are quite low in India now since last year. This present time is actually witnessing the highest drop in gold prices in one year period over more than one decade. It saw a 13% drop in one year. However, in the case of investing in physical gold, the investor will not receive any interest rate. Additionally, in the case of physical gold, there are charges, GST and if invested on a large scale there will be storage costs. SGB is a lucrative option in this regard because there will be no such challenge as it comes in the form of a certificate.
Reasons Why You Should Invest In Sovereign Gold Bonds
Here are a few reasons why you should consider SGBs if you’re thinking of investing in the yellow metal.
Highest Returns: Out of all available alternatives of investing in gold, SGBs offer the highest returns, which includes capital appreciation (market returns due to increase in the prices of gold) as well as additional interest @ 2.5% per annum which is one of the main features.
Low Taxability: While the annual interest income of 2.5% received is taxable, capital gains on the maturity of SGBs are exempt from taxation. Although it is recommended that SGBs should be held by the investor until the maturity period of eight years, it is possible to exit the instrument at the end of five years. Even if an investor opts to sell them after holding for a minimum period of five years, the benefit of Indexation is available for computing the capital gains tax.
Sovereign Guarantee: Unlike other modes of investments in gold, SGBs are issued by the Central Government of India and hence, carry a sovereign/government guarantee, eliminating the risk of default.
Very Low Storage Costs: SGBs, being electronic securities, eliminate high storage costs as well.
No Risk of Theft/Fraud: Risks of theft/ fraud associated with traditional investment methods such as Jewelry/Bullion are not there while investing in SGBs. Additionally one need not worry about the purity of underlying Gold, since the purity is backed by Govt. guarantee. The only risk associated with SGBs is the market risk because of fluctuation in Gold Prices, but that risk is common to all the instruments.
Conclusion
The only slight inconvenience with holding SGBs is the minimum lock-in period of 8 years, causing concerns over the liquidity of the investment. In that case, gold ETFs are the next best option with all the similar benefits, apart from the additional interest and exemption of capital gains.
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