Sovereign gold bonds (SGB) are mandatory certificates issued against grams of gold by the Reserve Bank of India (RBI). These bonds allow individuals to invest in gold without having to worry about safekeeping their physical assets. Most of the time, sovereign gold bonds, if chosen wisely, can prove to be a secure investment tool among individuals. This is because gold prices are less susceptible to market fluctuations.
In this article, let’s try to understand sovereign gold bonds better by knowing the:
- Features of sovereign gold bonds
- Benefits of investing in sovereign gold bonds
What are the features of Sovereign Gold Bonds?
Periodic interest pay-outs
Generally, the sovereign gold bond comes with a coupon rate of 2.5% per annum. This is disbursed half-yearly to investors.
Many sovereign gold bond schemes also allow the investors to withdraw or cash in their investment after 5 years. The withdrawal can be made either in the 5th, 6th, and 7th year of the bond tenor. However, the withdrawal will be processed on the interest disbursement days.
The Sovereign gold bond scheme of 2020 can be traded in the secondary market after 14 days from the initial subscription date. This is subject to the notice as published by the RBI. Furthermore, the prices at which these bonds are transacted in the market completely depend on the prevailing gold prices on the stipulated date.
What are the benefits of investing in Sovereign Gold Bonds?
Generally, sovereign gold bond returns tend to be substantial, since the price of gold increases in the long run. Hence, when it comes to stock market turmoil or inflation, or even periodic market fluctuations, it is advised to invest in gold funds, as it has the potential to hold their value even during the underperformance of major functional companies.
Hedge against inflation:
As stated above, sovereign gold bonds demonstrate extensive capital appreciation. Furthermore, the rate of growth of these bonds tends to be considerably higher compared to the prevailing inflation rates in a country, making these bonds a lucrative investment avenue.
The sovereign gold bond scheme of 2020 has a holding period of 8 years. This makes the bonds an excellent long-term investment scheme that has the potential to generate extensive capital gains, along with the security of the corpus built.
Who Should Consider Investing in Sovereign Gold Bonds?
Since sovereign gold bond schemes offer so many benefits, they make a good investment for
- Individuals who have a low aptitude for low-risk investment
- Individuals who wish to enjoy substantial returns on their corpus
- Individuals who are looking at diversifying their investment portfolio
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As compared to physical gold investments, a sovereign gold bond may be more lucrative. Plus, these schemes are backed by the highest financial authority. However, before you buy bonds, it is advised to analyze your financial goals and the time frame of the investment. Following RBI’s website regularly can also come in handy as it features subscriptions to these bonds and details about them.