Sovereign Gold Bonds in the Stock Market

Sovereign Gold Bonds: A Smart Market Investment

Physical gold ownership in Indian markets underwent a significant transformation in 2015. The Indian government launched SGBs. An innovative alternative to physical gold ownership.

Let us provide you with a full guide to understanding and exploring SGBs. How can you buy these? Is it from the stock markets? What are their benefits, and more importantly, what possible concerns do they pose?

What are Sovereign Gold Bonds?
They are the digital gold certificates; the Government securities denominated in grams of gold issued by the Reserve Bank of India.

Their features are:

• Denomination in grams of gold (1 gram is the base unit)
• locked in for 8 years with an exit option after 5 years.
• Semi-annual interest payments
• Redemption value based on the current market price of gold.

You enjoy the benefits of owning gold without the associated risks when you invest in SGBs.

How Can We Buy Sovereign Gold Bonds?
Investors have multiple options for purchasing SGBs such as:

1. Primary Market Purchases
   Sometimes, the government offers a special chance to buy SGBs directly through RBI announcements from banks, post offices, and stock exchanges and even with a discount for online applications.

2. Secondary Market Purchases
   Once SGBs are listed on the stock market, you buy and sell them like stocks. Here’s how:
   Once SGBs are listed on the stock market, you buy and sell them like stocks. Here’s how:

• Find a reliable stockbroker and have a Demat account to hold your SGBs electronically.
• Tell your broker the quantity of SGBs you want to buy or log in to your trading account.
• Search, select and buy
• The SGB will be credited to your Demat account.

Why Sovereign Gold Bonds?
SGBs are better than buying physical gold or other gold investments:

1. Safety and Security: Eliminates worries about burglars or safekeeping.
2. Guaranteed Returns: When your SGB matures, you get the current market value of gold.
3. Additional Income: SGBs earn you a regular interest of 2.50% annually.
4. Tax Benefits: SGB interest is tax-free and on maturing, you are exempt from capital gains tax.
5. Quick to Cash: SGBs are easy to buy and sell on stock exchanges.
6. Lower Costs: There are no hidden costs of making charges and storage.
7. Collateral Usage: It can be used as security to get loans.
8. Fair and Transparent: SGB’s value is directly tied to the real-time price of gold.

The Risks in SGB?
Consider the following factors before investing in SGBs:

1. Market Risk: The price volatility of gold influences the bond value.
2. Limited market: The market for trading SGBs might not always be active to sell them quickly at the exact price you want.
3. Interest Rate Risk: When interest rates in the economy increase, the interest on SGBs might seem unattractive.
4. Counterparty Risk: Any investment though backed by the government, carries some level of risk.
5. Opportunity Cost: Locking funds in SGBs for 8 years (or at least 5 years for early redemption) may mean missing out on potentially higher returns from other investment avenues.
6. Premium Pricing: Purchase of SGBs from the secondary market, costs you more than the actual value of the gold backing the bond. This extra cost can eat into your potential returns.

Understanding gold investments like Sovereign Gold Bonds (SGBs) can give you a leg up in a career in accounting. Commerce students aiming for certifications like CMA or CPA can easily ace exams with the knowledge of financial markets, Different investment strategies and How government-backed instruments function.  SGBs expose you to the workings of the financial market. The best place to master these concepts is Finspire Academy in Chennai. Their expert teachers and practical learning bridge the gap between theory and practice.  Check out Finspire Academy at https://finspireacademy.com. Remember, SGBs are just one example of the valuable insights you’ll gain. Finspire Academy has a wealth of knowledge waiting to be explored!