Sovereign Gold Bond: SGB buyers may eye profits, but experts feel a hold’s better

For example, investors who invested in these bonds between May and October 2017, when the gold price was ₹2,830 and ₹2,987 per gram, at the current prices are earning an absolute return of 221%, as their bonds come close to maturity. Investors who put in money in April 2020 at ₹4.639 per gram, could be eligible for buyback since they complete five years, earning a return of 101%.

Investors can sell sovereign gold bonds on stock exchanges or prematurely redeem them in the repurchase facility offered by the government once every six months, after the end of the fifth year. After the eighth year, bonds are redeemed, and the accumulated capital is given back to investors.

Gold acts as a hedge against rising inflation and is considered a safe haven during geopolitical turbulence. Financial planners believe investors should hold gold in line with their asset allocation, allocating 10-15% of their portfolio to the yellow metal.

“Sovereign gold bond is the best way to hold gold, as you get an additional 2.5% interest every year, there is a ₹50 discount on digital purchase while buying, there is no storage cost or expense ratio, and capital gains are tax free on maturity,” said Nikhil Gupta, founder, Sage Capital.

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With the government having stopped fresh issues of sovereign gold bonds, Gupta believes investors whose gold allocation is 10-15% of total portfolio should continue holding these bonds till maturity due to its benefits.Investors with a higher allocation through sovereign gold bonds should not make incremental allocation to gold and as and when these bonds mature, they could use the proceeds to make incremental allocation to debt and equity.