The Benefits Of Sovereign Gold Bonds: Is It The Right Time To Invest In Them?

In India, gold has a great sentimental value attached to it. The yellow metal is considered a prized asset and an ideal investment option. But owning physical gold entails a lot of risks and costs. This is where the Government of India’s Sovereign Gold Bonds (SGB) come in very handy. 

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What Do You Mean By Sovereign Gold Bond? 

A sovereign gold bond was issued by the RBI on behalf of the government. They pay a fixed interest of 2.5% per annum to their investors. The Reserve Bank of India, on behalf of the Indian government, issues Sovereign Gold Bonds, which are government securities denominated in gold. Hence, these gold bonds can be a good alternative to physical gold.  

This debt security was introduced in November 2015 and enables one to own gold in certificate format. SGBs are fully transparent, and they also track the import-export value of the gold. Since the government backs it, SGBs are considered very safe. Bonds are sold at the simple average closing price of gold of 999 purity three days before the subscription period. India Bullion and Jewellers Association Limited will publish the gold prices in INR. 

Authorized Agencies: 

Bonds are sold by the Government of India through multiple channels, including the Stock Holding Corporation of India (SHCIL), banks, select post offices and authorized stock exchanges both directly and through their agents. The SGBs can be traded through intermediaries or stock exchanges such as the National Stock Exchange and Bombay Stock Exchange. 

These bonds are sold only through the following entities: 

  • Nationalized banks 
  • Scheduled private and foreign banks 
  • Designated post offices 
  • Stock Holding Corporation of India Ltd. (SHCIL) 
  • Authorized stock exchanges 

SGBs can be applied either online or offline. Investors can apply offline at any branch of the above-mentioned companies, or online by visiting the websites of listed scheduled commercial banks. 

Benefits of Investing in Sovereign Gold Bonds: 

Safety 

SGBs do not carry any other risks associated with physical gold. There are no heavy making and designing charges on the bonds. Additionally, no one can steal or change ownership of them. 

A source of additional income 

Interest payments on SGBs are fixed at 2.5 percent annually. Investors receive interest twice a year. 

Hedge against Inflation 

Since gold value has been historically appreciated, investors will benefit from increases in the real value of their investments and accumulate significant wealth over time. 

Easy to trade on the stock exchange 

After holding the bond for five years, investors can trade SGBs on the National Stock Exchange or Bombay Stock Exchange. 

Collateral 

The Indian Bullion and Jewelers Association Limited sets the loan-to-value (LTV) ratio for SGBs to represent the value of gold. SGBs are accepted as loan collateral by banks. 

Indexation Benefit 

By transferring bonds before they mature, investors can benefit from indexation. Furthermore, the redemption money and the interest received are insured by the government.

Are Sovereign Gold Bonds Good Investments Right Now? 

In the long run, gold prices are projected to increase, making sovereign gold bonds a good investment for investors with a long-term investment horizon. The best time to invest in Sovereign Gold Bonds is when gold prices decline. 

  

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