Thread by @DealsDhamaka

#GOLD investment in #India ?

Most of us are hearing a lot about #SGB - Sovereign Gold Bonds these days. In this thread, I will try to explain my understanding

Sovereign gold bonds(SGB) were introduced by the Government of India in 2015 under the Gold Monetization Scheme.

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SGBs are substitutes for Physical gold, the bonds are issued by RBI (Reserve Bank of India) on behalf of Govt of India.

Imagine buying gold but in non-physical form, the price of the bond increases and decreases with the price of Gold in the international market

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Why SGB?

For investors who would like to keep GOLD as an investment class in their portfolio, #SGB offers a lucrative option with a few advantages

Advantages

1) No risk of buying impure gold - You buy the bond, its held in the books of the RBI or in Demat form

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2) Interest advantage - SGBs offer 2.5% interest per on the amount of initial investment. Interest will be credited semi-annually to the bank account. This is a fixed amount irrespective of whether the Gold price goes up or down

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3) No charges - No management fees or other charges. Gold ETFs & mutual funds charge up to ~1% as expense ratios. No hidden charges or GST. Some forms of gold like digital gold incur a 3% GST + 3%+ spread on selling.

4) Collateral - Can be used as collateral for loans

5) Tax-Free on maturity - The capital gains on SGB attract zero tax if held till maturity (8 years). If sold early, they attract STCG / LTCG based on when it is sold.

Note - The interest which is received from gold bonds is taxable under the IT Act, 1961.

Image Src - #Fincash

Challenges -

1) To avail of tax benefits, one needs to hold for 8-year which is a very long

2) Maximum /minimum amount of investments under the Sovereign Gold Bond Scheme

Minimum is 1Gm - ~Rs.5400 at CMP
Maximum is 4KG

Challenges

3) Capital Loss Risk - If the price of GOLD during redemption is less than the current price, one ends up waiting for years and accrues a loss on the investment

How to invest?
Primary Market -

Banks - SGBs are sold through scheduled commercial banks like the SBI, HDFC, ICICI bank, etc. Can also be applied via. stock brokers like Zerodha

They are only launched in tranches by RBI &available on specific dates. Current tranche is live now

For Primary market issues, applying online gets you Rs.50 discount on the issue price.

The gold bonds can be traded after the RBI notification for that tranche. generally 14 days after subscription. Investors can buy & sell bonds in secondary market (on platforms like Zerodha)

Secondary market - Buying in the secondary market can avail same benefits of tax-free redemption as the primary market subscription if held to maturity

The gold bonds are stored in Demat format & will be available for secondary market trading on platforms like Zerodha

Advantages of Secondary Market-

Due to low liquidity, investors tend to sell their bonds at a discount in the secondary market. Hence, if you want to buy it for maturity, you can get a discounted price with better YTM (Yield to Maturity)

Img Src - #Wint

Disadvantages of secondary market buying

- Very low traded volume & its difficult to get the required qty if you are buying in bulk
- Price discount while selling exists as it existed for buying.

Refer to volume at :
nseindia.com/market-data/so…

How to buy in the primary market -

Apply through your bank or broking platforms.
In Zerodha, there is a separate section in COIN for applying for fresh tranches.

Sign up here if you don't have an account - zerodha.com/?c=RV2736&s=CO…

For the secondary market, you can look at the price and volume of SGB traded in the NSE portal and search for the SGB name in your trading portal

NSE - nseindia.com/market-data/so…

I personally invest through secondary market

Note -

Any form of investing carries risk. Do your due diligence before investing

This is not a buy/sell recommendation. Just sharing some thoughts about SGB based on my understanding

Best source to know more is RBI website -
m.rbi.org.in/Scripts/BS_Swa…

#Investing #Gold

High-level thread on other options for #Gold investment

https://twitter.com/DealsDhamaka/status/1447988045483966464?s=20&t=SwbZprYn98omWcKmHPn7Xg

When investing in SGB, remember that the interest paid is on the initial investment and not the CMP of the bond. So the issue price of the bond matters from the interest payment perspective.

Read this article about purchasing through secondary market - livemint.com/money/personal…