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It\u2019s not surprising that India\u2019s household gold reserves account for about 40% of the GDP of the country. After all, most Indians consider gold one of the safest forms of investment. But investing in physical gold also comes with its fair share of issues. Here are the most important ones-<\/p>\n\n\n\n
But what if you could make better gold investments? Investments that are a lot cheaper, guarantee better returns, and help you save on taxes? We\u2019re talking about gold bonds<\/em>!<\/p>\n\n\n\n Wondering what these gold bond investments are? Here are a few things about these bonds you need to know.<\/p>\n\n\n\n <\/p>\n\n\n\n Put simply, a sovereign gold bond (SGB) is a type of government security that is a substitute for physical gold. Investors can buy these bonds from the RBI on a per unit basis, wherein every gram of gold issued as per the bond has 999% purity. And that\u2019s not all. Investors can buy and hold the bond for a term of eight years and earn interest at a rate of 2.5% every year on them.<\/p>\n\n\n\n Investors can also buy SGBs anytime at a cost equivalent to the closing price of gold from three working days before the point of purchase. And they can redeem the bond by selling it at a price according to the latest base data.<\/p>\n\n\n\n Now that you know what a gold bond is all about, let\u2019s take a better look at how they work.<\/p>\n\n\n\n <\/p>\n\n\n\n Typically,government gold bonds or SGBs get issued by the RBI in small numbers or tranches throughout the financial year. Investors can buy these bonds via banks, brokers, online platforms and even post offices! Investors can buy SGB units from secondary markets like stock exchanges too.<\/p>\n\n\n\n Investors can choose to get physical, dematerialized, or digital SGBs from any distributor. They need to subscribe for the SGB by paying the issuance cost by cash, DD, cheque, or other digital payment modes to get their SGBs. Keep in mind that investors buying physical bonds will need to credit their bonds with their DEMAT accounts by putting in a special request.<\/p>\n\n\n\n Once the government gold bonds reach maturity, investors can redeem them at the market value of gold at that time. Not to mention, investors holding the bond also earn interest at a fixed rate on their holdings annually.<\/p>\n\n\n\n <\/p>\n\n\n\n Gold bond investments have greater tax benefits compared to physical gold. This is because physical gold is treated as a non-financial asset with a holding period of three years. Any sale during this period is subject to short term gains tax at the peak rate. Post this holding period, sales attract taxes as long-term gains. Here the taxation rate will be 10% without indexation benefits or 20% with indexation benefits.<\/p>\n\n\n\n But gold bond redemptions are tax-free, and investors can redeem them after five years of holding. Keep in mind that the interest on bonds is subject to taxation according to Section 43 of the Income-Tax Act, 1961, and gold bonds sold in stock markets will still be taxed at extant rates.<\/p>\n\n\n\n Unlike physical gold, investors earn interest at 2.5% on their SGBs. The interest earned partially compensates for inflation risks even after taxation, given that the RBI assures the returns.<\/p>\n\n\n\n Investors can use government gold bonds as collateral for loans. The loan to value ratio (LTV) will be similar to regular gold loans. However, the decision to grant the loans in exchange for SGBs will be in the hands of the lender.<\/p>\n\n\n\n Here are the features of sovereign gold bonds:<\/p>\n\n\n\n Here\u2019s a look at the shortcomings of Gold Bonds:<\/p>\n\n\n\n An upward movement in the stock market usually means a fall in gold prices. During a time of economic property, companies perform well due to a surge in demand. As a result, the prices of gold bonds are usually low during this period. <\/p>\n\n\n\n An appreciation in the US Dollar, which is usually considered the benchmark currency, causes the price of gold to fall due to a rise in inflation rates. <\/p>\n\n\n\n Sovereign gold bonds, for tax purposes, can be categorised into capital gains earned on the maturity of the bond and interest earnings that are disbursed semi-annually. While investors holding the gold bonds for their entire term must pay long term capital gains tax, the interest income is taxed under \u2018income from other sources\u2019 according to the tax slab you belong to.<\/p>\n\n\n\n A sovereign gold bond scheme is amongst the most profitable investment options. This is because of their considerable benefits and comparatively lower shortcomings. That said, these are most ideal for individuals who have a low risk appetite but want to gain significant returns in the long run.<\/p>\n\n\n\n Sovereign gold bonds also allow investors to diversify their portfolios, which helps cushion their investments from adverse changes in the stock market. You see, in case the stock market falls, the value of your gold bonds will rise, helping you mitigate the overall risk to your investment portfolio. <\/p>\n\n\n\n What\u2019s more, when compared to gold ETFs and physical gold investments, sovereign gold bonds are much more profitable as these are backed by a government-mandated scheme.<\/p>\n\n\n\n If you\u2019re planning on purchasing sovereign gold bonds, be sure to analyse your financial goals and investment time frames to make an informed decision.<\/p>\n\n\n\n Now that you know what a gold bond is, you will agree that buying one is far more profitable than buying real gold. After all, with an SGB, you get all the benefits you get while investing in physical gold, along with better interest rates and tax exemptions. What\u2019s more, you can have peace of mind because you don\u2019t need to worry about storing physical gold and keeping it safe.So, if you want to diversify your portfolio and invest in gold, do it the smarter way with gold bonds. Check out Tata Capital\u2019s Moneyfy app<\/a> today!<\/p>\n\n\n\nWhat is a gold bond?<\/strong><\/h2>\n\n\n\n
How do SGBs work?<\/strong><\/h2>\n\n\n\n
Benefits of gold bond investments<\/strong><\/h2>\n\n\n\n
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Features of Sovereign Gold Bonds Scheme<\/strong><\/h2>\n\n\n\n
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Limitations of Gold Bonds<\/strong><\/h2>\n\n\n\n
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Who Should Consider Investing in Sovereign Gold Bonds?<\/strong><\/h2>\n\n\n\n
In conclusion<\/strong><\/h2>\n\n\n\n