Gold has traditionally been considered a reliable store of value, and Dhanteras marks the beginning of Diwali festivities when many seek to invest in this precious metal. One of the favoured avenues for gold investment is through Sovereign Gold Bonds (SGBs), which offer unique advantages, including an additional 2.5% per annum interest and the absence of capital gains tax.
SGBs are typically issued in tranches by the Reserve Bank of India (RBI) and are available for a limited time. However, this Dhanteras, there is no SGB tranche available for purchase. According to reports, the next tranche is expected to arrive in December.
But, here's the twist — investors do not necessarily need to wait for the RBI to issue fresh SGBs. These bonds are readily
available on the secondary market, accessible through stock exchanges such as the National Stock Exchange (NSE) and BSE.
One compelling reason for investors to explore the secondary market is the potential to acquire SGBs at discounted rates. The discounts are primarily a result of the relatively low trading volumes on stock exchanges. The prices of SGBs in the secondary market, just like any other publicly traded security, are influenced by the forces of supply and demand. Additionally, demand and supply dynamics can cause SGB bond prices to deviate from gold spot prices.
However, it's important to note that
buying SGBs from the secondary market comes with certain considerations. The availability of SGBs and their maturity dates can vary depending on market conditions. Investors may need to be content with whatever quantities are on offer, and they might have to wait for a buyer to show interest in their holdings if they decide to sell before maturity.
Investors who hold SGBs until maturity stand to benefit from tax advantages. If they sell their holdings before maturity, the taxation will apply based on the holding period.
For instance, if an investor holds SGBs for less than three years, they will be subject to tax at the applicable rates on their gains. However, if they sell the bonds after holding them for at least three years, they will be taxed at a lower rate of 20% of the gain, with the added advantage of applying indexation benefits. Waiting until maturity can result in the entire gain being exempt from tax.
Mahendra Luniya, a Digital Gold Expert and Chairperson of Vighnaharta Gold, emphasised the flexibility of Sovereign Gold Bonds.
He stated, "According to the present rate, with Sovereign Gold Bonds, one can invest a minimum of one gram, equivalent to ₹6000. This investment not only allows investors to benefit from potential increases in the gold price but also offers an interest of 1.25% on the face value of the bond every six months, totaling two and a half percent annually. One can liquidate investment in the stock market when needed."
(Edited by : Amrita)
First Published: Nov 9, 2023 1:13 PM IST
