Thread by @ETMONEY

The latest Sovereign Gold Bond (SGB) issue is open till Mar 10.

You can buy 1 gram (or 1 unit) of SGB at Rs 5,561.

But there’s a cheaper alternative.

You can buy previous issues of SGBs on #stock exchanges at a 5-6% discount. (Check image)

Should you buy them?

A 🧵

First, some quick facts.

Each SGB unit equals 1 gram of gold (999 purity).

New issues are sold through #banks.

There’s a Rs 50 discount on online purchases.

After the issue is over, #SGB is listed on stock exchanges.

This gives you the option to exit before maturity.

SGBs mature in 8 years.

But they have a 5-year lock-in, which means you have the option to exit after 5 years.

On redemption, you get the prevailing market price of gold.

Plus, you earn an #interest of 2.5% every year on the issue price.

Let’s now talk about new SGB issues vs buying old issues on stock exchanges.

You can easily get the new SGB issues via net #banking.

On the other hand, buying SGBs on stock exchanges can be tricky.

Why? Let’s find out. 👇

The government issued the first SGB in 2015.

So, there are many tranches available on exchanges.

But not all of them have sellers.

In fact, some issues have zero trade volume (see table).

If you plan to buy old SGBs on exchanges, here’s what you should keep in mind.

Old SGBs do trade at a discount to the current issue.

But inadequate trade volumes (liquidity crunch) can be an issue.

You can check it on the following link.

nseindia.com/market-data/so…

A practical tip to buy SGB on exchanges:

Either quote the seller’s asking price or the last traded price.

Else, your transaction may or may not go through.

After all, a seller should agree to your price.

One more important thing.

The 2.5% interest is based on the issue price of each SGB.

If you pay more for an old SGB than its issue price, you will lose out on some interest.

Let’s look at an example. 👇

The issue price of SGBs launched in May 2018 (Symbol - SGBMAY26) is Rs 3,064.

On Mar 7, 2023, they were trading at around Rs 5,500 on exchanges.

If you buy this issue, you will get 2.5% interest on Rs 3,064.

So, your yield (interest rate) will be lower than 2.5%. (see table)

Is it important to consider interest rate loss when buying SGBs?

That’s up to you to decide.

They could be important if you plan to hold SGBs until maturity or buy in large quantities.

If you want to trade or buy small quantities, lower interest may not be a deal-breaker.

Now, a few points on #tax treatment.

Whether you buy new issues from a bank or old issues on exchanges, you pay zero tax if you hold the units till maturity.

But if you sell before maturity, capital gains are taxable.

How much tax you pay depends on the holding period.

If the holding period is less than 3 years, gains are added to your #income & taxed as per your slab.

If you sell after 3 years, you’ll pay 20% tax after indexation (i.e., inflation adjustment).

The interest from SGBs is added to your income and taxed as per your slab.

To sum up, you can get a better deal on exchanges. But be aware of liquidity problems when buying & selling.

You get a discount on the current gold price while buying, but the same would apply when you sell.

So, you may fetch slightly lower than the prevailing #goldprice.

We put a lot of effort into creating such informative threads.

So, if you find this useful, show some love❤️

Please like, share, and retweet the first tweet 😇

For more threads, follow us.

Also, click on the bell icon in the profile section, so you don't miss any threads.