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What is a Sovereign Gold Bond? Pros, Cons & How to Invest
In India, gold holds a special place in our lives, whether for financial security, investment, or cultural traditions. This precious yellow metal is often associated with wealth and prosperity. Sometimes, the management of physical gold becomes inconvenient. Concerns such as safety, storage costs and resale complications may make it a bit troublesome.
Table of Content
- What is a Sovereign Gold Bond?
- Benefits of Investing in Sovereign Gold Bonds
- Limitations of Sovereign Gold Bonds
- How to Buy Sovereign Gold Bonds Online?
That’s where Sovereign Gold Bonds (SGBs) step in, offering a smarter and more secure way to invest in gold without the usual stress.
What is a Sovereign Gold Bond?
A Sovereign Gold Bond is an investment certificate issued by the Reserve Bank of India (RBI), which represents a certain amount of gold in grams. These bonds allow individuals to invest in gold without physically storing it, making it a safe and more convenient option.
Since gold holds its value well and often appreciates over time, SGB is seen as a stable and profitable investment. And because they are supported by the Government of India, they come with high levels of trust and security. Additionally, investors often compare sovereign gold bond returns with traditional gold investment options due to the added interest component.
RBI issues these bonds in installments at regular intervals, usually every 2 to 3 months. Investors can join during a limited window, typically a week, when a new plan is announced through a public notification or press release. Upon investment, the investor is issued a holding certificate as proof of bond ownership.
Benefits of Investing in Sovereign Gold Bonds
The Sovereignty Gold Bond scheme is issued by the Reserve Bank of India under the Government Securities Act, 2006, by the Central Government. Backed by the government, SGBs are regarded among the most secure investment choices in India. The only possible risk is linked to market movements, which are tied to fluctuations in gold prices.
Launched in November 2015, these bonds were introduced under the Gold Monetisation Scheme. The goal was to offer an easy and safer way to invest in gold, as it is unlike physical forms such as bars or jewellery that come with storage and safety issues.
When you invest in SGBs, you receive a holding certificate as proof of ownership. You also have the option to convert this certificate into digital form and store it in your Demat account, adding an extra layer of security.
For a long time, gold has appreciated in value, and it continues to do that even now. This makes SGB a strong investment option, especially during a market slowdown when investors often move into gold as a more stable property. In fact, many people today weigh the benefits of SGBs against options like a rate of gold loan today for quick liquidity.
The maturity period of SGBS is 8 years, making it suitable for investors to grow their wealth over a long period while keeping their capital safe. Additionally, these bonds can be used as collateral for debt. According to RBI rules, you can borrow up to 75% of the current market value of bonds from scheduled financial institutions, similar to availing a gold loan.
Suggested Read: Gold Investment Options in India: Which One is Best for You?
Limitations of Sovereign Gold Bonds
While SGBs provide many advantages, they also come with a few pitfalls:
- Lock-in period: The investment has an 8-year lock-in period. You can choose to return early after 5 years, but only in specific circumstances. This may not suit people with short-term financial needs.
- Interest Rate Limit: The fixed interest rate on SGB can not always be as attractive as other investment products.
- Market instability: Since the bond price is linked to gold prices, its market price can go up or down, leading to potential profit or loss.
Suggested Read: Difference Between Gold ETFs and Gold Bonds
How to Buy Sovereign Gold Bonds Online?
Here are the steps to buy SGB:
- Log in to your net banking account.
- Navigate to the ‘eServices’ or ‘Investments’ tab and select the ‘Sovereign Gold Bond’ option to proceed.
- Carefully read the terms and conditions, then click ‘Proceed’.
- Fill out the registration form and submit it.
- Enter the number of units you want to buy and add nominee details.
- Recheck the details and click ‘Submit’.
Understanding the features, benefits, and limitations of Sovereign Gold Bonds can help you make smarter investment choices. Before investing, evaluate whether SGBs match your risk tolerance, financial goals, and investment horizon. Also, consider factors like taxation and how this fits into your overall portfolio strategy. To meet your gold loan requirements aligned with your financial objectives, Muthoot Finance offers expert assistance, whether you need debt or equity solutions. Simply search for 'gold loan near me' to find the nearest Muthoot Finance branch and explore your options.
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