Sovereign Gold Bonds

Compared to other forms of gold investment, investment in sovereign gold bonds is relatively cost-effective. Unlike physical gold, SGBs have a more prudent sense of holding. Physical gold has storage concerns, and an investor has to pay an additional storage charge. SGBs are tax-free, which is not the same as when purchasing physical gold, one must pay GST when purchasing actual gold. SGBs have an 8-year maturity duration, the capital gains tax is not applicable. However, if you exit after 5 years, capital gains tax will be applicable. A gold investment offers high returns along with the flexibility to buy and sell it easily. If you wish to gain substantial returns over time and save on tax, you should opt for gold investment. Fixed deposits provide low but steady returns and are not impacted by fluctuations in the market.

The long lock-in period, the limited secondary market liquidity, gold price risk etc. are some of the downside risks in gold bonds. The interest from these bonds is 2.5% per annum, and this is over and above the capital gains from the investment. The tenure of these bonds is usually around eight years, and one can sell the bonds on the stock exchange after five years from the date of issue.

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