Gold Bonds – An Investment Opportunity

The lure of yellow metal for Indians has stood the test of time courtesy the well-entrenched cultural psyche of gifting gold during marriage, purchasing gold during auspicious occasions, etc.

GreenEdge’s View on Gold

Gold has been accepted as a store of value since the last ~5,000 years in the minds of human beings. No other currency can boast of such a feat. (We all know the fate of crytos, bitcoins today after the initial hoopla surrounding it. You can read our Bitcoin article here – Memo 22: Bitcoins – Better or Bitter?)Gold is a hedge against inflation, war, famines, geo-political risks and possible human madness :). Hence, at GreenEdge, we believe that 5-10% of an individual’s total wealth should be allocated to gold.

In India, we are love-struck with gold jewellery as a form of exposure to gold but Sovereign Gold Bonds offer an attractive option to take exposure to gold. You can invest in the Series V of Sovereign Gold Bond which is open for subscription from 14th Jan, 2019 to 18th Jan, 2019.

Advantages of Investing in Gold Bonds vs Other Gold options

1. Capital Appreciation + Interest – The scheme not only offers capital appreciation on value of gold but also offers an annual interest of 2.5% which is payable semi-annually. Jewellery, gold coins, bars, gold ETFs, funds do not offer any interest.

2. Cost Savings –Transaction charges (including making charges) in jewellery can be 25-30%, whereas in gold coins/ bars can be as high as 13-15%.Gold ETFs/ funds attract expense ratios of ~1%. Gold bonds score over these options with low transaction costs & NIL expense ratios

3. Storage & Purity – Unlike physical gold, gold bonds can be stored in demat form or as a certificate. Risks of theft/ impurities don’t exist in gold bonds unlike physical gold.

Features of the Scheme

1. Limits – Minimum & maximum investment is 1 gm & 4kg respectively per fiscal year. Each bond is equivalent to 1 gm of gold. In the current series V of gold bond which is open for subscription, the issue price is Rs. 3,214 per gram/ bond. Online application will attract Rs 50 discount taking issue price at Rs. 3, 164 per gram/ bond.

2. Pre-Mature withdrawal – The tenor of the gold bond is for 8 yrs; however, it’s possible to do a pre-mature withdrawal on interest payment dates in 5th, 6th& 7th year from date of issue. The bonds can also be sold on secondary market via NSE/ BSE subject to available liquidity.

3. Taxation – The periodical interest received on bonds are taxable but capital gains made at the time of maturity are tax-exempt. In case of pre-mature withdrawal, indexation benefits can be availed while calculating long-term capital gains.

4. Application – It can be done online (can be purchased/ sold on NSE/ BSE) or by filling a physical form

Feel free to reach out in case you wish to seek professional help for planning your finances systematically – //