SHOULD YOU INVEST IN SOVEREIGN GOLD BONDS?
 |
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!!.
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
https://t.me/joinchat/AAAAAELl4KUnaJzi-JJlDg/
Thanks for your help 👍
ReplyDelete