Why you should be investing in Sovereign Gold Bonds this Dhanteras

Sovereign Gold Bonds and gold Exchange Traded Funds (ETFs) are examples of paper gold.

The government has come out with five tranches of SGB for a total value of Rs 3,060 crore. Photo: Reuters

With festive and wedding season around the corner, the demand for yellow metal is at its peak in India.

Gold, which is considered as an auspicious metal according to traditions, makes India as second largest consumer in the world.

But, looking the trend this year, buying physical gold is not the only option Indians are looking at. With the change in thinking and growing awareness, people are exploring new ways of buying gold like paper gold.

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Sovereign Gold Bonds and gold Exchange Traded Funds (ETFs) are examples of paper gold.

The newly launched government backed Sovereign Gold Bonds could be considered as an investment option as it comes with number of advantages.

What are SGBs and why you it should be there in your investment portfolio?

Finance Minister, Arun Jaitley had announced in his Union Budget Speech of 2015-16 about developing sovereign gold bonds as a financial asset, an alternative to purchasing the metal gold.

The scheme was launched in November 2015 at an issue price of Rs 3,119 crore per gram of gold. SGBs are government bonds or securities denominated in grams of gold, which are issued by RBI on behalf of Government of India.

To make it more attractive, the government will be launching sixth tranch of the SGB scheme ahead of Dhanteras, an auspicious day to buy gold as per Indian traditions. Under the scheme, people will be able to buy securities worth up to 500 grams.

In simpler words, these tranches are nothing but a chance for investors to park their money, like Systematic Investment Plan.

On Friday, the government has decided to offer a discount of Rs 50 per gram in the sixth tranche of the scheme which opens on Monday.

As per the data available, so far, the government has come out with five tranches of SGB for a total value of Rs 3,060 crore.

What makes SGBs more attrative is the tax advantage. Under the 2016-17 Union Budget, Jaitley had proposed that the redemption of the bonds by an individual be exempt from the capital gains tax, The Economic Times reported. Thus, holding the bond till maturity will have tax benefit.

Further, as these are government backed, the government has fixed an interest of 2.75% on investment in SGBs, which again make it more beneficial then owning physical gold. From the physical gold, you cannot earn anything.

Moreover, if you are buying physical gold, you will surely end up paying around 9-10% of making cost. But, unlike physical gold, the SGBs does not include any entry charge.

These bonds will be traded on the stock exchanges like BSE, NSE which are always under the scanner of regulatory bodies. Also, they will be sold through banks, Stock Holding Corporation of India and post offices. Which means, it is more safer as the investor need not to worry about the quality of the gold.

Considering SGBs in the paper form, the security level is high unlike keeping physical gold in your homes.

So, this Dhanteras, buy paper gold!

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