3 Reasons You Shouldn’t Invest In Sovereign Gold Bonds. But 6 Reasons You Should! (Rank Princess)

3 Reasons You Shouldn’t Invest In Sovereign Gold Bonds. But 6 Reasons You Should!

Gold investments are always considered to be the safest. With gold bonds becoming popular, it is important to understand the pros and cons of the investments before taking the big leap.

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% 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% pure. The return value of 100% 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.

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6 Reasons Sovereign Gold Bonds Are Safer Than You Think (Content Princess)

6 Reasons Sovereign Gold Bonds Are Safer Than You Think

The Reserve Bank Of India will soon be issuing Sovereign Gold Bonds on behalf of the Government of India.

How They Work

Investing in Sovereign Gold Bonds is similar to investing in physical gold. Investors receive returns that are linked to the market price of gold.

The bonds are issued on payment of Rupees and are denoted in grams of gold. Investments can be as small as two grams or even as large as 500 grams per fiscal year.

These bonds will be available from designated post offices and individual commercial banks. When applying for a Sovereign Gold Bond, the potential investor includes a bank account. This account will be credited all profits from the bond.

The bonds can be purchased through cash, cheques, demand drafts, and electronic fund transfers. They are paid upon maturity in direct payment credited to the bank account provided.

Sovereign Gold Bonds earn interest at the rate of 2.75 percent per year on the amount of initial investment. They will be available in both paper and demat forms.

Exiting The Investment

Though the tenor of Sovereign Gold Bonds is eight years, it is possible to exit the investment early. There are a few ways to do this:
● Trading the demat form of bond on the Exchange
● On the 5th, 6th, and 7th years there is the option of coupon payment dates.
● Approach the bank or post office purchased from within thirty days of the coupon payment date.
● Must be done at least one day before the coupon payment date.
Once early redemption has been completed, proceeds will be credited to the bank account provided when applying for the bond.

Better Than Gold?

Investing in physical gold can come with issues and risks. These problems are removed when investing in Sovereign Gold Bonds.

Sovereign Gold Bonds eliminate the risk and cost involved with storing gold. These bonds also remove the issue of purity level involved in gold jewelry investments.

Using Sovereign Gold Bonds In Other Ways

Sovereign Gold Bonds can also be used as collateral when applying for loans. The loan to value rate for Sovereign Gold Bonds would be the same as it is for gold loans.

The Sovereign Guarantee

Sovereign Gold Bonds carry a Sovereign Guarantee on both the capital invested and on the interest obtained.

The quantity of the investment is protected since payment when redeemed at the market price per gram.

Secure Records Prevent Loss

With Sovereign Gold Bonds, there is no risk of losing the bond. The files of the bonds are held in the books of the Reserve Bank of India.

When the bond is one month from maturing, a notice is sent to the investor. On the day it matures the proceeds are credited to the bank account on record.

Tax Exemptions

The capital gains tax on the profits from redeeming a Sovereign Gold Bond has been exempted. This exemption will transfer to the new holder if the bond is traded or transferred.

The only risk of Sovereign Gold Bonds is one attached to any investment based on gold. The risk that the market price of gold will drop.

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