Sovereign Gold Bonds vs. Fixed Deposits: An Investor's Guide to Choosing Wisely

Summary

Fixed deposits (FDs) have remained a reliable investment option for many years, whereas sovereign gold bonds (SGBs) have captured public attention in recent years. Both have their advantages and disadvantages. So, choosing between them can be a challenging decision. FDs are low-risk investments offered by banks and FIs, featuring a fixed, predetermined interest rate for the duration of the deposit. SGBs are government-issued gold bonds and are a hassle-free investment option with decent returns.

Investing wisely is a key factor in achieving financial security and ensuring peace of mind.  In this article, we will talk about two popular investment options, sovereign gold bonds (SGBs) and fixed deposits (FDs). FDs have a long-standing history. They have been available for years. In contrast, SGBs have garnered the interest of investors relatively recently. They provide a new investment opportunity for those seeking diversification. Responding to this recent surge in investor interest, the SGB scheme 2023-24 Series II subscriptions will commence on September 11, 2023. The Reserve Bank of India (RBI) has also announced that this SGB installation has been priced at INR 5,923 per gram.

Investors are drawn to FDs and SGBs as selecting these secure investment avenues can assist in attaining their financial goals. But how do FDs differ from SGBs? And which should you choose to grow your investments? Let’s find out.

Fixed deposits: Basics and benefits

Selecting smart investment options with low risks should be one of your top priorities. And this is where FDs come into play. They are low-risk investment options that are typically provided by banks and financial institutions (FIs). If you are looking for a stable investment option with a steady flow of money, consider investing in FDs. They:

1. Require you to deposit your sum of money for a fixed period, which usually ranges between 1-10 years
2. Provide an interest rate that is predetermined and stays fixed during the tenure of the FD. It is usually more than the rate of inflation.
3. Offer a better interest rate than regular savings accounts.  And the best part? They are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) of India for up to INR five lakh, per depositor, per bank.
4. Extend better interest rates to senior citizens. You can also opt for periodic interest rates where your rate of interest is calculated at regular intervals over a specific period, to meet your daily expenses.
5. Offer the guarantee of fixed returns. They are hassle-free and low-risk.

Sovereign gold bonds: Bane or boon?

SGB can be looked upon as government securities. The RBI issues them on behalf of the Indian government. For individuals interested in investing in gold without purchasing physical gold, these bonds provide a secure investment alternative. And it’s not physical gold, which eliminates your worries about storage and security expenses.  Here’s everything else you need to know about SGBs as a viable investment choice:

1. With a primary unit of one gram, SGBs are typically expressed in multiple gram(s) of gold. The minimum investment required is one gram of gold offering flexibility and enabling diverse participation.
2. SGBs are traded on the stock exchange. The price of the bond depends on the current price of gold. They can be sold any time before their date of maturity to realise gains.
3. These bonds have an eight-year term, along with a five-year exit option that can be exercised on days of interest payment.
4. They come with an annual interest rate of 2.5 % which is payable on a semi-annual basis.
5. Capital gains from bond redemptions are tax-free if they are held up to their date of maturity.
6. It comes with capital appreciation, which refers to an increase in the value of an asset over a period of time. In other words, it is the difference between the purchase price and the selling price of a particular investment.

Fixed deposits vs. Sovereign gold bonds: A comprehensive comparison

While both FDS and SGBs are popular and secure investment choices, how are they different from each other? And what should you consider when it comes to choosing between them? Let's explore the distinctions.

Parameters	Fixed deposits	Sovereign gold bonds
Returns	Offer a fixed interest rate for the tenure of deposit Provide an interest rate that is generally higher than savings accounts	Come with a fixed interest rate, which is currently 2.5% per annum Offer the benefit of capital appreciation
Maturity	Come with a lock-in period from 1 to 10 years	Has a fixed maturity period of eight years with an option to exit after five years
Risks	Is low-risk as the return amounts are fixed. It is a great way to ensure a steady flow of income.	Experience price fluctuations from time to time as gold prices can be volatile. It is dependent on economic conditions such as currency exchange rates and geo-political changes.
Liquidity	Come with a fixed lock-in period but you can withdraw your FD prematurely by paying a penalty	Traded typically on the stock exchange and come with a lock-in period of 5 years, which means low level of liquidity

Fixed deposits and sovereign gold bonds: Maximising returns with expert guidance

In the decision between FDs and SGBs, the choice ultimately hinges on your financial circumstances, risk tolerance, and investment goals. Given the complexities and nuances of these investment options, seeking expert guidance is highly advisable. Experts can provide invaluable insights. They can help you make informed decisions. Consult our specialists to learn everything you need to know about the FDs and SGBs. Use advanced tools to grow your investments and reach your financial goals with one of India’s fastest-growing trading platforms.

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