Gold — The Golden Investment

Gold, the metal that has been for ages considered a solid investment and has been passed along generation. Gold a metal that is considered a safe haven during times like today where there is too much uncertainty.

Image from Goldprice.org

In the last 20 years, gold prices have risen 10 times but buying physical gold has its own set of problems, like safety, making charges, concerns regarding the purity, liquidity and we all wish there was a better way to invest in gold.

If only !!!

  • If only, I had invested Rs 500 in the year 2000 to buy 1gram of gold. It would have worth Rs 5000 now, a cool 10x growth in wealth.
  • If only, I could buy and sell gold like I buy stocks.
  • If only, I could get some interest on the money invested like FD
  • If only, I would not have to pay for Making charges
  • If only, my gold was safe and secure
  • If only, I could trust the purity

Wish Granted

As if RBI was listening to all your wishes and answer is Sovereign gold bonds. You can buy gold digitally and it will answer all the “if only” above.

There are several youtube videos which do a really good job of explaining most of the points. Additionally, RBI has a really good FAQ.

I will not cover these points in the post below as it will save me a lot of effort. Why reinvent the wheel?

Scroll down after watching the video for additional but important points not covered in the video.

https://www.youtube.com/watch?v=vcAnkbaFBwY

Important Points in the form of FAQ

You will earn a 2.5% interest on your investment but this is SIMPLE INTEREST. In FD you normally earn compound interest. Interest will be credited semi-annually to the bank account of the investor

2. Where is the liquidity, as the tenure is of 8 years?

Correct, However, there are following provisions for liquidy.

  • Although the tenure of the bond is 8 years, early encashment/redemption of the bond is allowed after the fifth year from the date of issue on coupon payment dates
  • The bond will be tradable on Exchanges if held in Demat form. This means you can sell any time provided someone is ready to buy it.

The above option gives you liquidity but there are no free lunches.

3. Will there be tax implications of selling in in exchange?

Of course. You will need to pay capital gains tax.

4. What If I buy from Exchange using a broker?

Yes. You can and typically you will get a discount as well.

5. Oh! Wow, then why would I not buy from stockbroker only?

It is not that simple. There are a few points to consider e.g.

  • You will earn Simple Interest on the amount that was invested by the original investor. Say original investor bought 10 unit for 40000, You will get SI on 40000 and not on price you bought at.
  • You should compute how much SI you would earn v/s how much discount you are getting and see if it makes sense for you.

6. When can I invest?

If you don’t want to wait for the next issue, you search for SGB and buy from broker any time.

If you can wait or you don’t find a good deal in the open market, you can wait for the next edition as per following dates

Image from RBI

Important Update: RBI has fixed the price of Series IX SGB at Rs. 5000. You can subscribe to it between Dec 28 2020 — Jan 01 2021 and start the new year on a positive note.

Government of India, in consultation with the Reserve Bank of India, has decided to offer a discount of ₹50/- per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode. For such investors, the issue price of Gold Bond will be ₹4,950/- (Rupees four thousand nine hundred fifty only) per gram of gold.

A Contrarian Thinker