A foodie needs an excuse to eat.
A Gold lover does not even need an excuse to splurge on Gold and occasions like Akshaya Tritaya is the BIGGEST festival for any Gold lover!!.
A Gold lover does not even need an excuse to splurge on Gold and occasions like Akshaya Tritaya is the BIGGEST festival for any Gold lover!!.
In fact, Akshaya Tritiya or not…..Gold continues to remain a perennial favourite of Indians.
The Government of India is issuing 2020-21 Series IV from July 6 to July10.
The issue price for the SGB is Rs.4852 per gram of Gold.
Those who apply online will get a DISCOUNT OF RS.50 PER GRAM meaning you will be issued SGB at Rs.4802 per gram of Gold.
FEATURES :
1. Open for subscription on 10 July and closes on 14th July.
2) Bonds will have a denomination in multiples of 1 unit = 1gram of Gold
3) Tenor = 8 years)
4) Price 2780 (mkt value 2830).............the Previous series was issued at 2901 (50 less than the then market value of 2951)
5)Interest 2.5% pa payable semi-annually.......The interest shall be paid in half-yearly rests and the last one shall be payable on maturity along with the principal.
6) Minimum 1 gm of Gold, Maximum 4kg of Gold
1. Open for subscription on 10 July and closes on 14th July.
2) Bonds will have a denomination in multiples of 1 unit = 1gram of Gold
3) Tenor = 8 years)
4) Price 2780 (mkt value 2830).............the Previous series was issued at 2901 (50 less than the then market value of 2951)
5)Interest 2.5% pa payable semi-annually.......The interest shall be paid in half-yearly rests and the last one shall be payable on maturity along with the principal.
6) Minimum 1 gm of Gold, Maximum 4kg of Gold
7) Each underlying unit will track and mirror the price of Gold
8) SGB available in Demat and physical format. (Here physical means Paper format).
9) Investments can be made in name of Minors
10) Indian Residents, HUFs, Trusts, Charitable Establishments, Universities are eligible
11) KYC required (same as when buying physical Gold) : Aadhar Card, PAN, Passport,etc
8) SGB available in Demat and physical format. (Here physical means Paper format).
9) Investments can be made in name of Minors
10) Indian Residents, HUFs, Trusts, Charitable Establishments, Universities are eligible
11) KYC required (same as when buying physical Gold) : Aadhar Card, PAN, Passport,etc
12) Exit option available after 5th year
POSITIVES :
1. Gold is lower than the lowest slab of 5% and is taxed only on @3%.
But, this SGB does NOT have even this LOWEST tax.
Yes, SGB is TAX FREE.
2. Additional return of 2.5% per year (not compounded, but annual)
3. Tax Free if held till maturity (physical gold is taxed)
4. No making charges
5. Purity of 999
6. Can be used as Loan collateral
7. No "fund Management Charges" compared to Gold Funds or Gold ETFs
1. Gold is lower than the lowest slab of 5% and is taxed only on @3%.
But, this SGB does NOT have even this LOWEST tax.
Yes, SGB is TAX FREE.
2. Additional return of 2.5% per year (not compounded, but annual)
3. Tax Free if held till maturity (physical gold is taxed)
4. No making charges
5. Purity of 999
6. Can be used as Loan collateral
7. No "fund Management Charges" compared to Gold Funds or Gold ETFs
8. Ample Liquidity
9. The Bonds carry Sovereign Guarantee !
10. These Bonds can be used as a collateral for Loans.
And
Gold is taxed at rates even lower than the LOWEST slab of 5% of GST at just 3% and is definitely attractive Taxation wise but these SGB Bonds are exempt from even GST!!
NEGATIVES :
1. Interest is taxable
1. Interest is taxable
2. Liquidity option available only if it is in Demat Form.
3. If sold before maturity, Capital Gains will be taxed at 20% (though Indexation benefit is available)
4. Reduced Interest is at 2.5% (the first 6 tranches the interest was 2.75%)
3. If sold before maturity, Capital Gains will be taxed at 20% (though Indexation benefit is available)
4. Reduced Interest is at 2.5% (the first 6 tranches the interest was 2.75%)
5. No option of adding more Bonds when Gold falls as the entry is fixed for a limited period only.
investments in gold ETF attracts TER (total expenses ratio) of 0.48- 1.18 per cent per annum of the total assets. No such charge involved with Sovereign Gold Bonds if they don’t exit through the exchanges
investments in gold ETF attracts TER (total expenses ratio) of 0.48- 1.18 per cent per annum of the total assets. No such charge involved with Sovereign Gold Bonds if they don’t exit through the exchanges
| Comparison between Physical Gold, Gold ETFs and Sovereign Gold Bonds | |||
| Parameters | Physical Gold | Gold ETF | Sovereign Gold Bond |
| Investment limit | No limit | Minimum 1 gram and maximum no limit | Minimum 1 gram and maximum 4 KG for an individual (as per rules for SGB 2020-21). |
| Safety and security | Higher risk of theft than other forms | More safe in terms of reduced risk of theft | Safer in terms of reduced risk of theft |
| Total returns | Lower than actual return on gold* | Lower than actual return on gold* | Higher than actual return on gold (Due to the interest paid on the bond during holding period) |
| LTCG | LTCG applicable after 3 years | LTCG applicable after 3 years | LTCG applicable after 3 years. (No capital gain tax if held till maturity) |
| Can it be used as collateral for loan? | Yes | No | Yes |
| Tradeability / Liquidity | Conditional** | Tradeable on exchange | Tradable on exchange. You can redeem from 5th year onwards. |
| Lock in period | No | No | 5 years |
| Purity of gold | Purity check is a big concern | High (as it is held in electronic form) | High (as it is held in electronic form) |
| Storage cost | Can be high if kept in locker (locker cost) | Low (held in demat form). Demat account charges may be spread over several securities. | Very low (The bond is issued by RBI and is held in the books of central bank.) |
HOW TO BUY :
1. Through your Stock Broker.....Units will be credited to demant
2. Through Post Office....will be issued Physical Bond (when selling, not you WILL have to convert them to demat form)
3. Through Banks (both physical and demat mode available)
THE BIGGEST ATTRACTION for me is that this SGB gives me Interest of 2.5% pa (on base value) and mirrors the prices of Market Value of Gold.
Neither Physical Gold, Gold Mutual Funds or Gold ETFs pay any Interest.
For a Gold lover, SGB is a GOD SENT WINDOW to invest in Gold (expecially as it is GST free!!)
SGB is definitely the BEST choice if you want to buy Gold but if you want to create Wealth and become rich.....no .....the asset class of Gold itself is not the right one...
BEFORE INVESTING IN SGB.....ask yourself
WHY you are investing?
If it is for Returns = Please don’t
If it is for Safety of Capital = Okay (Gold tends to give returns in line with Inflation)
If it is as an alternative to Gold = Yes....Please Go ahead
If it is to diversify = Yes. ...Please go ahead
But, do note....DO NOT....have more than 5-10% of exposure to Gold
SO WHAT SHOULD I DO ?
Stick to Asset Allocation.
Gold alone does not make you Rich or Wealthy.
Invest ONLY if you are sure to hold till Maturity.
Invest ONLY if your Asset Allocation indicates you need to have more Gold exposure.
Even if we assume just a 5% increase in Gold prices in 8 years.....the returns will be much higher due to the additional interest of 2.5% being given by Govt.
For example, if you invest Rs.50,000 in this bond and the same will appreciate to say...73872...you will actually get an extra Rs.10,000 which is 2.5 pa interest that the Govt is giving you.
So you will end up with Rs.83872/- which is a return of 6.68% CAGR
Realistic example of 1 gm...
20% on 4802.....which is Rs.5762 per gm
20% on 4802.....which is Rs.5762 per gm
Please note INTEREST IS TAXABLE and is payable every 6 months.
Cost wise, SGB is really very effective even compared to Gold ETFs but cost is not everything.
You need to look at Liquidity too.
Even if you are lover of Gold and accept the benefits that SGB does offer....do not forge the dictum “DONT PUT ALL YOUR EGGS IN 1 BASKET”
While this refers to Different asset class...it could be referred to Gold too.
Do not put everything into SGB....do have bit of exposure to Gold
The next series will be open from August 3 to August 7 and wil be the Series V
“
If you have an eight-year horizon, SGBs are the best choice given the interest income and LTCG tax
Srikanth Matrubai Author of the Amazon Best Seller DON'T RETIRE RICH
The MOST Loved book on How NOT TO RETIRE RICH!
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