DON'T RETIRE RICH

Friday, 14 May 2021

GET GOLD PLUS RETURNS WITH SGB. HERE'S HOW .....

SHOULD YOU INVEST IN SOVEREIGN GOLD BONDS?


The Government has launched the 1st tranche of Sovereign Gold Bonds for the year 2021-22. 
I would say GO FOR IT. 
SGB will give you GOLD PLUS returns. 
Read on to know how ..... 



A foodie needs an excuse to eat. 
A Gold lover does not even need an excuse to splurge on Gold and occasions like Akshaya Tritiya is the BIGGEST festival for any Gold lover!!.
In fact, Akshaya Tritiya or not…..Gold continues to remain a perennial favorite of Indians.




The Government of India is issuing 2021-22 Series I from May 17 to May21.

The issue price for the SGB  will be announced 1 day prior to opening

Those who apply online will get a DISCOUNT OF RS.50 PER GRAM

 


 

FEATURES  : 
1. Open for subscription on 17 May and closes on 24th May

2) Bonds will have a denomination in multiples of 1 unit = 1gram of Gold
3) Tenor = 8 years)
4) Price  4727

5)Interest 2.5% pa payable semi-annually.......The interest shall be paid in half-yearly rests and the the last one shall be payable on maturity along with the principal.
6) Minimum 1 gm of Gold, Maximum 4kg of Gold

7) Each underlying unit will track and mirror the price of Gold
8) SGB available in Demat and physical format. (Here physical means Paper format).
9) Investments can be made in name of Minors
10) Indian Residents, HUFs, Trusts, Charitable Establishments, Universities are eligible
11) KYC required (same as when buying physical Gold): Aadhar Card, PAN, Passport, etc

12) Exit option available after 5th year

 

 

POSITIVES : 
1. Gold is lower than the lowest slab of 5% and is taxed only on @3%.
But, this SGB does NOT have even this LOWEST tax.
Yes, SGB is TAX-FREE.
2. Additional return of 2.5% per year (not compounded, but annual)
3. Tax-Free if held till maturity (physical gold is taxed)
4. No making charges
5. Purity of 999
6. Can be used as Loan collateral
7. No "fund Management Charges" compared to Gold Funds or Gold ETFs

8. Ample Liquidity

9. The Bonds carry Sovereign Guarantee!

10. These Bonds can be used as collateral for Loans.

And

Gold is taxed at rates even lower than the LOWEST slab of 5% of GST at just 3% and is definitely, attractive Taxation wise but these SGB Bonds are exempt from even GST!!

 


 

 

NEGATIVES : 
1. Interest is taxable

2. Liquidity option available only if it is in Demat Form.
3. If sold before maturity, Capital Gains will be taxed at 20% (though Indexation benefit is available)
4. Reduced Interest is at 2.5% (the first 6 tranches the interest was 2.75%)

5. No option of adding more Bonds when Gold falls as the entry is fixed for a limited period only. 
investments in gold ETF attract TER (total expenses ratio) of 0.48- 1.18 percent per annum of the total assets. No such charge involved with Sovereign Gold Bonds if they don’t exit through the exchanges

 

 



HOW TO BUY :

1. Through your Stock Broker.....Units will be credited to demat
2. Through Post Office....will be issued Physical Bond (when selling, not you WILL have to convert them to demat form)
3. Through Banks (both physical and demat mode available)



THE BIGGEST ATTRACTION for me is that this SGB gives me Interest of 2.5% pa (on base value) and mirrors the prices of Market Value of Gold.
Neither Physical Gold, Gold Mutual Funds or Gold ETFs pay any Interest.
For a Gold lover, SGB is a GOD SENT WINDOW to invest in Gold (especially as it is GST-free!!)

SGB is definitely the BEST choice if you want to buy Gold but if you want to create Wealth and become rich.....no .....the asset class of Gold itself is not the right one...



 

BEFORE INVESTING IN SGB.....ask yourself

WHY you are investing?


If it is for Returns = Please don’t


If it is for Safety of Capital = Okay (Gold tends to give returns in line with Inflation)


If it is as an alternative to Gold = Yes...Please Go ahead


If it is to diversify = Yes. ...Please go ahead

But, do note...DO NOT....have more than 5-10% of exposure to Gold
 


 


 

 

SO WHAT SHOULD I DO ?

 

Stick to Asset Allocation.

Gold alone does not make you Rich or Wealthy.

 

Invest ONLY if you are sure to hold till Maturity.

Invest ONLY if your Asset Allocation indicates you need to have more Gold exposure.

 

 

Even if we assume just a 5% increase in Gold prices in 8 years.....the returns will be much higher due to the additional interest of 2.5% being given by Govt.

 

For example, if you invest Rs.50,000 in this bond and the same will appreciate saying...73872...you will actually get an extra Rs.10,000 which is 2.5 pa interest that the Govt is giving you.

So you will end up with Rs.83872/- which is a return of 6.68% CAGR

 

Realistic example of 1 gm...
20% on 4802.....which is Rs.5762 per gm

 

Please note INTEREST IS TAXABLE and is payable every 6 months. 

 

Cost wise, SGB is really very effective even compared to Gold ETFs but cost is not everything.

You need to look at Liquidity too.

 

Even if you are a lover of Gold and accept the benefits that SGB does offer....do not forge the dictum “DONT PUT ALL YOUR EGGS IN 1 BASKET”

While this refers to a Different asset class...it could be referred to as Gold too.

Do not put everything into SGB....do have a bit of exposure to Gold Funds too.

Remember, whether It is gold or Equities or Real Estate for that matter….always be practical and never emotional.

 

 

 

If you have an eight-year horizon, SGBs are the best choice given the interest income and LTCG tax

Finally, I would like to REQUEST you NOT to buy Gold as an Investment. Yes, go ahead and buy Gold as an Ornament to wear but DO NOT start any Gold INVESTMENT even if you have a Girl Child.
Yes, Gold is important for the marriage but it does not mean that you invest only in gold.

 

The biggest problem with Gold is that it does not produce anything. NO interest, No Dividend, No rent, Nothing at all.

Gold’s growth depends on GREATER FOOL THEORY.

Gold grows only in the belief that some other person will buy this gold for MORE in the future.

And yes, Gold’s growth also is dependent on FEAR.
What if there is a World War?
What if there is a Crisis?
What if there is a Pandemic?

Gold shoots up in this kind of scenario

But..wait

Didn’t the stock markets too shoot up during Covid 1st Wave?
In fact, Stock markets DOUBLED yet again giving more returns than gold.

 

 

RIGHT TIME TO BUY GOLD ?

AKSHAYA TRITIYA is definitely NOT the right time to buy/invest in gold

Gold Prices tend to become weak after the Akshaya Tritiya and the Wedding season.

There is zero technical/fundamental to buy Gold on Akshaya Tritiya.

It's very clearly mentioned in Scriptures that on the Akshaya Tritiya day, we are supposed to do GOOD DEEDS and is not just restricted to worshipping Devi Mahalakshmi.

The word "Akshay" means the never diminishing in Sanskrit and the day is believed to bring good luck and success. It is believed that if you do charity on this day you will be blessed.

This buying of Gold on Akshaya Tritiya was created by our friends in Jewellery Business.

 

 Regards, 

Srikanth Matrubai


 


All the best,
Regards,
Srikanth Matrubai
MUTUAL FUND DISTRIBUTOR
REBALANCE VOLATILITY CERTIFIED COACH
Srikanth Matrubai, Author of the Amazon Best Seller DON'T RETIRE RICH


You are strongly encouraged to consult your financial planner before making any decision regarding this investment. The views expressed here are the author's personal views and should not be interpreted as a recommendation to invest/avoid.

 
Srikanth Matrubai Author of the Amazon Best Seller DON'T RETIRE RICH

Do read the book and give your valuable feedback and request you to post positive comments on Amazon. https://amzn.to/3cHUM6M/ 

You can purchase the book on Amazon and Flipkart 




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