Should You Buy Sovereign Gold Bonds From Exchanges?

Investing in gold has always been a popular option for people looking to diversify their portfolios or hedge against inflation. Sovereign Gold Bonds (SGBs) are a relatively new investment option that has gained popularity among Indian investors. 

SGBs are issued by the Government of India and are a form of investment allowing individuals to invest in gold without owning physical gold. SGBs are available for purchase from banks, post offices and exchanges. This blog will discuss whether you should buy Sovereign Gold Bonds from exchanges, where and how you can buy them.

What are Sovereign Gold Bonds?

Sovereign Gold Bonds are government securities that are denominated in grams of gold. The Reserve Bank of India (RBI) issued the bonds on behalf of the Government of India. The bonds are issued in tranches, each with a specific issuance period. The minimum investment in SGBs is one gram of gold. The maximum investment is four kilograms for individuals and Hindu Undivided Families (HUFs) and 20 kilograms for trusts and similar entities.

Should you buy Sovereign Gold Bonds from exchanges?

Buying SGBs from exchanges can be a good investment option for some investors. Here are some factors to consider before you decide whether to buy SGBs from an exchange.

Discounted price 

One advantage of buying SGBs from an exchange is that you can purchase them at a discounted price. The price of SGBs is linked to the market price of gold. The bond cost is fixed at the average closing price of gold of 999 purity in the last three business days of the week preceding the subscription period. 

Exchanges may also offer discounts to investors, which can result in a lower purchase price. However, the government may offer up to Rs. 50 per gram discount on the issue price to investors who apply online and pay digitally.

However, it would help to compare the price offered by the exchange with that provided by other sources, such as banks and post offices, before making a final decision.

Brokerage charges 

When you buy SGBs from exchanges, you need to pay brokerage charges to your stockbroker. It would help to compare the brokerage charges offered by different stockbrokers before choosing one.

Liquidity 

SGBs purchased from an exchange can be traded on the exchange like any other security. You can sell your bonds if you need money on priority. However, remember that the liquidity of SGBs may be lower than that of other securities. You may need more time to sell your bonds.

No storage hassles 

Unlike physical gold, you need not to worry about storage when you invest in SGBs. This can be a significant advantage for investors who do not want to worry about the security and storage of physical gold.

Interest income 

SGBs also offer a fixed interest rate of 2.50% per annum, payable semi-annually on the nominal value of the bonds. The interest earned on SGBs is taxable, but there is no tax on the capital gains if the bonds are held until maturity. This can be an advantage for investors who want to earn interest income in addition to the appreciation in the value of gold.

Demat account 

You need a demat account with a stockbroker to buy SGBs from exchanges. If you do not have a demat account, you need to open one before you can purchase SGBs from exchanges.

Investment objective 

Before you buy SGBs from exchanges, you should evaluate your investment objective. If you aim to invest in gold for the long term and do not need liquidity, then buying SGBs from exchanges can be a good option. However, if you need liquidity or a short-term investment objective, there may be better options than buying SGBs from an exchange.

Where could you buy sovereign gold bonds?

SGBs are available for purchase from banks, post offices and exchanges. If you want to buy 

SGBs from exchanges, you must have a Demat account with a stockbroker. Here are some of the exchanges where SGBs are available:

National Stock Exchange (NSE): The NSE offers SGBs for trading in demat form. You can purchase SGBs through your stockbroker using your trading account.

Bombay Stock Exchange (BSE): Like the NSE, the BSE also offers SGBs for trading in demat form, purchased through your stockbroker using your trading account.

How can you buy sovereign gold bonds?

Follow these steps to purchase sovereign gold bonds:

1. Open a demat account: The first step is to open a demat account with a stockbroker. You can choose a stockbroker that offers SGBs trading.
2. Fund your account: Once you have opened a demat account, you must fund it with the required amount to purchase SGBs.
3. Place an order: You can order SGBs through your stockbroker. The order can be placed online or offline, depending on the stockbroker's process.
4. Payment: Once the order is executed, you must pay for the SGBs. You can pay digitally through net banking, UPI, or a debit card.
5. Credit to demat account: After payment confirmation, the SGBs will be credited to your demat account. You can track your investment through your demat account.

Conclusion

Sovereign Gold Bonds can be a good investment option for investors who want to invest in gold without the hassles of storing physical gold. Buying from exchanges in particular can benefit some investors as it offers discounted prices, liquidity, and no storage hassles. However,  consider the above mentioned factors before investing in SGBs from exchanges. 

Investing in SGBs can diversify your portfolio and help you earn interest income while benefiting from the appreciation in the value of gold.

Note: To help plan your trading activities and investment strategies, find here the NSE Holidays 2023, BSE Holidays 2023, MCX Holidays 2023, and Muhurat Trading 2023. Also see here to know more about the stock market timings.

Disclaimer

The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.