Whether to go with Sovereign gold bonds or opt for the traditional physical gold has been common debate among professional and casual investors alike. While the fundamental principle of searching gold rate today in Akola or Jaipur and then investing on the day that feels right remains the same, there are some minute variations in which these two forms of gold operate. Hence we have done a comparative analysis to help you find the right investment:
Unlike physical gold, SGBs can be purchased at as low as Rs 1,000, making it easy for investors with limited capital to invest in the yellow metal. Moreover, there is no lock-in period for SGBs which means you can sell them on any working day during the tenure of the investment.
- No Selling Cost
Selling physical gold jewellery involves a lot of hassle irrespective of whether it is done through a jeweller or online. It also brings down the value significantly due to making charges etc (10-25%). In the case of SGBs however, there are no such costs. Hence it is more convenient for buyers who want to buy back their investment at maturity and take delivery of gold as well as for those who want to sell their investment before maturity. The only cost involved is a nominal fee paid to exchange for selling SGBs listed on stock exchanges.
SGBs can be bought in denominations as low as 1 gram from Post Offices and selected banks. This means you can buy SGBs as per your investment budget without having to worry about buying at high prices when you don’t have enough money for a full kilobar or coin. Moreover, since SGBs are stored electronically by banks or dematerialised by NSDL, you do not have to worry about storing them safely in lockers or bank vaults. You can easily buy, sell and transfer SGBs through your Demat account. This is widely opposite to physical gold where you need to not only look up gold price today Jhansi or whichever city you are form, but also rush to the store to acquire the gold. You can visit Khatabook to know about the best places to buy gold from.
- Price risk
When you invest in physical gold, you are exposed to price risk. The price depends on market conditions and it fluctuates. If you want to sell your physical gold, then you have to accept that price even if it is lower than what you expected. However, SGB protects from price risk as SGB are issued at Rs 2,874 per gram of gold with a discount of Rs 50 for online investors. The government fixes this rate at which an investor can exit on maturity or can redeem if sold before maturity. A 2.5% interest is payable half-yearly on this amount i.e. 7% per annum based on the issue price of Rs 2,874 per gram.
Physical gold always carries the risk of theft, loss or damage and this risk increases if you store it in lockers or banks where you pay recurring fees for storage and insurance. However, SGBs are stored electronically by banks and dematerialised by NSDL which will ensure your SGBs are safe from loss or damage. Moreover, customers do not have to worry about making arrangements for the storage of physical gold if they have invested in SGBs.
- Better returns than physical gold
SGBs earn annual interest at the rate of 2.75%. The interest is payable every six months over eight years. This means that if you buy SGBs worth Rs 50,000, you will get an annual interest income of Rs 1,375. In comparison, physical gold gives no returns until it is sold.