Sovereign Gold Bond scheme offers an investment opportunity in gold without having to purchase any physical gold like jewelry or coins. Instead, you purchase gold bonds with one bond unit equivalent to one gram of gold. The Sovereign gold bond investment is of a paper form. It can also be availed in Demat and digital form.
Here are three reasons why you shouldn’t invest in Sovereign gold bonds followed by six reasons why you should:
1. A lock-in period of 5 years
Bonds must be redeemed only after eight years. Investors can’t opt out of the scheme until five years. The money invested is confined for five years and opting out early bears a heavy liquidity risk. Other gold investments do not have such restrictions.
2. Interest is taxable
Interest will be paid every six months, and it is taxable. Investors cannot enjoy tax-free interest and need to pay the taxes at the marginal rate.
3. It’s a risky business
Gold bond returns are heavily dependent on the market price. Default risk is also a concern. Investments are only made for the assigned period in the scheme; you will bear a risk of uncertainty about the next investment period in this scheme. Investments can be made otherwise with a certain liquidity risk.
The six reasons you should invest:
1. Impressive amount of interest
The Sovereign gold bond offers an interest of 2.75{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616} p.a which is a fairly exciting as no other gold investment offers such a price. Interest will be paid every six months until the 8-year maturity period is reached. The maturity amount is redeemed at the market price of gold after the maturity period is completed.
2. No burglary Concerns
Sovereign bonds can be purchased in Demat and digital forms, thereby reducing the risk of theft or larceny. Bank lockers are mostly rendered necessary for storing physical gold; these can be avoided by purchasing Sovereign bonds.
3. Loans are permitted
Loans can be taken against the bonds. Interest earned on these bonds will help investors to pay off the interest on loans. All the loans permitted under physical gold investments are also permitted here.
4. Withdrawals are approved
Withdrawals are allowed after the initial lock-in period of 5 years. Partial withdrawals are approved in multiples of 1 gram of physical gold.
5. TDS is not applicable
TDS is not applicable on the redemption amount. This is one of the major advantages as the TDS will not be subtracted from your final returns. This will ensure better satisfaction with the result.
6. Assured purity and sovereignty
There is no impurity risk involved in the gold bond. The investment value is based on the gold that is 100{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616} pure. The return value of 100{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616} is guaranteed on the purchases made. So the fear of being cheated on purity mark is eliminated.
The Sovereign gold bond is issued by the government. This makes the purchasing of the bond easier and risk-free. The bond stands by its promise of sovereignty, as suggested by its name since the bond is guaranteed to bear the fruit of assured returns on investment.
