Globally, gold is treated like a solid currency, which can easily be liquidated in times of crisis. However in India, gold carries a huge emotional value too. People often end up buying gold in the form of jewelry, coins, biscuits, bars, or billions to save for a bad day, without even realizing the true value of gold. That’s because “gold equals savings” is a thought that is ingrained into us for a long time.
Experts believe that in order to have a diversified portfolio, one must invest anywhere between 10-20% in gold. When it comes to investing in gold, an investor has several options. Starting from investing in physical gold (PG), one can invest in Digital Gold (DG), Exchange Traded Funds (ETFs), and Sovereign Gold Bonds (SGBs).
What are Gold Bonds?
Sovereign Gold Bonds (SGBs) are considered to be one of the most profitable investment schemes. The value of these bonds is assessed in multiples of gram(s) of gold. An investor can start with 1 gram, which is the basic unit, and invest up to a maximum of 4 kg. For trusts and universities, this limit is 20 kg.
Who Issues Gold Bonds?
As per the Government Security Act, 2006, the Reserve Bank of India (RBI) is given the authority to issue the gold bonds, on behalf of the Central Government. Usually once every 2-3 months, a press release is made to announce the same, and investors are given a time of about 7 days to subscribe to the schemes. These SGBs have a maturity period of eight years with an exit option in the 5th, 6th, or 7th year. The bond price is decided on the basis of a simple average of the closing price for gold of 999 purity for 3 business days of the week preceding the subscription period.
Gold Bonds vs. Physical Gold
Compared to physical gold, gold bonds are a better option for investment. First of all, there are no concerns regarding its purity. Secondly, the gold bonds are kept in Demat form. So, there is no risk of the investment getting lost or stolen. Moreover, since the bonds are in Demat form, one can trade them on stock exchanges like NSE or BSE. After eight years, the bonds mature and the redemption amount is credited to the investor’s bank account.
Benefits and Risks of Gold Bonds
Compared to other investments, gold bonds have certain unique features. There are some benefits and risks associated with investing in them. Some of the associated benefits and risks are listed below:
Advantages of Investing in SGB
Hassle-free and convenient: Making an investment in gold bonds is very simple. After the investment, the investor gets a holding certificate. This makes the process very transparent. There is no risk of gold getting lost or stolen. An investor may hold SGB in either paper or Demat form.
Better returns: SGBs offer an annual interest rate of 2.5%, which is paid semi-annually to the investors. The returns are paid on the basis of the current market price of gold. This interest is paid irrespective of the rise in the fall of gold prices.
Tax benefits: Gold bonds bought from the primary market get exemption from capital gain tax if they are held till maturity. Only in the case of premature withdrawal after the fifth year, the investor has to pay a 20% along with the indexation benefit.
Long Maturity Period: The maturity period for gold bonds is 8 years which is quite long and discouraging for a lot of investors to choose it sometimes as their investment option.
Capital Loss: As the value in the gold bond is directly linked to Gold price in international markets, one might incur a loss, if, at the time of maturity, the prevailing price is lower than the price at which the bonds were bought.
Early redemption: If an investor needs to sell the bonds within 5 years, then he may not get the right price. He might have to sell them at discount. Also, the profit is added to the income and the person has to pay tax on that. This greatly affects the returns an investor makes on investment.
Who Can Invest in SGBs?
Any resident of India, defined under Foreign Exchange Management Act, 1999 (FEMA) and apply. Apart from individuals, gold bonds can be taken by Hindu Undivided Families (HUFs), charitable institutions, and universities. Even a minor can invest in SGB provided the application has is made by his or her guardian on his behalf for investment account holders with the Demat account joint holding of the account is also allowed.
Who Can Sell Gold Bonds?
Gold bonds can be held in two ways – 1) Physical form, 2) Demat form.
One has to hold them for a minimum of 5 years. After the expiry of this tenure, they can be prematurely redeemed or encashed by the investors through banks. Before selling, the bonds have to be converted into Demat form, which is easier to sell in the secondary market. They can be transferred to a 3rd person’s name by using DIS slips.
Gold Goes Digital
In recent times, one more of investing in gold is becoming very popular. Known as digital gold, it is a smart way of buying gold online, where one can have absolute peace of mind throughout the investment journey.
How Does Digital Gold Work?
When an investor makes an investment in digital gold, the trading company buys an equivalent amount of physical gold and stores it under his name in secured vaults.
The Boom of Digital Gold
Due to the coronavirus outbreak, there has been a noticeable change in the buying behavior of customers. Being confined to home, people turned to digital gold in large numbers. With people becoming more conscious about physical distancing, digital gold has gained a lot of popularity during the pandemic.
Pros and Cons of Investing in Digital Gold
|1. One can start by making small investments.||1. There is an investment limit of Rs. 2 lakhs on most of the platforms.|
|2. One can take the physical delivery of the gold at the doorstep.||2. Delivery and making charges are further applied to the price of gold.|
|3. With digital gold, one’s purchase is safely stored and is 100% insured.||3. Lack of an efficient government-run regulating body such as RBI or SEBI.|
|4. One can always exchange digital gold for physical jewelry or gold coins and bullion.||4. In some cases, the company only offers a limited storage period, after which one has to either take physical delivery or sell the gold.|
Digital Gold vs. SGB
1. Investing in digital gold, is like having physical gold but without the hassle of storage and safety. SG bonds are issued by the RBI on behalf of the Central Government for a maturity period of 8 years.
2. In the case of Digital gold, one buys the actual value of gold that is stored in physical form in a digital vault and is insured. In case of need, one can get the digital gold liquidated at market price, however, in the case of SGB, there is a minimum lock-in period of 5 years.
3. The quality of digital gold is higher at 0.9999 in comparison to SGB at 0.999
4. There is no GST levied in the case of SGB. However, there is a 3% GST levied on digital gold transactions.
5. No extra costs are incurred on selling digital gold. In SGB, a heavy transaction cost is incurred if the bonds are sold off before maturity.
6. Currently there is no regulator for Digital gold but SGB has a sovereign guarantee.
OroPocket – Choice of Smart Investors
Among the various platforms trading in SGB or digital gold, OroPocket is fast emerging as a preferred option. And there are valid reasons for that. OroPocket makes use of a Blockchain-based platform, which allows the investors to independently verify the integrity of their holdings. OroPocket offers customers complete transparency. The only fee charged is a flat transaction fee, which is 0.25% of the transaction value. There are no hidden charges, storage fees, or insurance fees.
With OroPocket, one can use its latest UPI feature within the OroPocket app and can spend his holdings in real-time. Investing with OroPocket means, investing in 99.99% pure 24K gold. Gold, as always been everyone’s favorite, is a good hedge against inflation. With so many alternatives available in the market today, OroPocket stands as a face in the crowd.
When it comes to investing in gold, there are various options, like physical gold, digital gold, and even Sovereign Gold Bonds (SGB). Commonly known as gold bonds, these bonds are issued by the RBI on behalf of the central government for a period of 8 years. At the time of maturity, the bonds are redeemed as per the prevailing gold prices. The bonds have a minimum lock-in period of 5 years, though, if required, one can sell them before 5 years also. But, in this case, the investors don’t get a good price for their investment.
Among the various trading platforms, OroPocket offers investors, both convenience and better returns. They make good use of technology to ensure the integrity of customer’s holdings. The company is very customer-friendly and ready to serve customers 24/7. All these things put together have made OroPocket the preferred choice of smart and new-age investors.