SBGs are now offering stock market like returns

Sovereign Gold Bonds
SBGs are now offering stock market like returns

by Tanushree Jaiswal Last Updated: Feb 19, 2024 - 06:35 pm 237 Views
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Indians love their gold. We as a country are obsessed with the yellow metal. However, it may not be the ideal choice for investment as it involves making charges and the hassle of storing the physical gold. However there is one gold investment that can offer you returns at par with the stock markets. We are talking about Sovereign Gold Bonds.

Sovereign Gold Bonds (SGBs) are a popular investment choice in India. They offer the appeal of gold combined with the practicality of bonds. 

These bonds are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. SGBs provide individuals with an accessible means to invest in gold without the need for physical possession.

When you invest in SGBs, you essentially buy government security denominated in grams of gold. This investment is backed by the government and tied to the actual quantity of gold. In other words, you're investing in the value of a specific amount of gold without the hassle of storing or safeguarding the physical metal.

The issuance by the RBI adds credibility and security to the investment, making SGBs a reliable choice. They serve as a practical substitute for owning physical gold, allowing investors to benefit from gold's value appreciation in a more convenient and secure manner.

What if I told you these bonds offer stock market-like returns without the usual risks? 

For example, The first batch matured in November 2023, delivered an impressive net return of 12.9% per annum, including a fixed interest payment of 2.5% (originally 2.75%). 

To put this into perspective, Nifty50, the benchmark index offered a return of about 12%, while large-cap mutual funds and gilt funds gave returns of approximately 13% and 7%, respectively, during the same period.

The early investors in SGBs have made significant returns as the redemption price for these bonds was fixed at Rs 6,132 per gram, considerably higher than the debut price of Rs 2,684 per gram in 2015.

Over the past eight years, these bonds have given total returns of 148%, slightly below the BSE Sensex's 152%. 

The advantage of SGBs over physical gold is that they can benefit from gold price fluctuations while eliminating the hassle of dealing with the actual metal. These bonds can be stored electronically in a demat account or as physical certificates.

Apart from the fixed interest of 2.75%, SGBs offer attractive tax benefits the investors as the investors holding SGBs until maturity in the eighth year qualify for a 100% capital gains exemption

The bonds have an eight-year maturity period and can be traded on stock exchanges from the fifth year onwards.

Considering the returns of these bonds and the minimal risk involved investors should allocate 10-15% of their portfolio in gold through SGBs.

The eligibility criteria for investing in SGBs are broad, allowing Indian residents, individuals, trusts, HUFs, charitable institutions, and universities to participate. Investment on behalf of a minor is also permitted.

In summary, Sovereign Gold Bonds provide Indian investors with a secure and convenient way to invest in gold, offering ease of storage, tax advantages, and a cultural connection to gold.

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About the Author

Tanushree is a seasoned professional with 6 years of experience in the Fintech and Edtech industry.


Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.
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