Sovereign Gold Bond investments have delivered a return of 11% over last 8 years, says Navneet Damani of MOFSL

Gold continues to be one of the preferred bets in everyone’s portfolio, and if you compare it with the first tranche of sovereign gold bonds launched about eight years back, it has delivered an absolute return of 120 per cent plus. On a CAGR basis, it has given about 11.5 per cent returns, says Navneet Damani, Senior Vice President–Head Research Commodities & Currency, Motilal Oswal Financial Services Ltd, in an exclusive interview with Sakshi Batra, Senior stock market anchor and Associate Editor with Business Today. Edited excerpts:  

BT: Should one invest in the SGB, considering gold prices have corrected from May high? How have SGBs performed in the past? 

ND: We’ve seen a 5 per cent correction from the peak of 2023 in gold. Gold continues to be a preferred asset. It continues to be one of the preferred bets in everyone’s portfolio. And if you compare it with the first tranche of sovereign gold bonds, launched about eight years back, it has given an absolute return of 120 per cent plus. If you see the CAGR basis, it has given you about 11 per cent of returns. So it has been a very interesting proposition, and not to forget the 2.5 per cent additional return in terms of the interest coupon delivered every year. So it's a very win-win situation for investors who invested in the SGBs over the last few years. And if you have that kind of a time Horizon, then it is one of the bigger and best asset classes to invest in.  

Well, personally, it doesn't happen like that because you will see the rupee depreciating very sharply if that has to happen. With the kind of love which Indians have for gold, it would be very painful to buy gold at Rs 1 lakh for 10 grams, so I don't wish that to happen. Still, I never said that in the kind of macro developments we live in, the fast-paced world we live in, we see many moving parts that shift gear year after year. Over the last two years, you've seen gold going from 40,000 to 43 000 to highs of 55000, then back to 50,000, and now back again to 63,000 to 64,000. It's a lot of things which are going around in the world, and what is going to happen, say five years or eight years from now, it's very difficult to time in at this point, but from a three years perspective, if it is definitely a good asset to invest in of course from an eight-year perspective also it's likely to give you a hand of return but will it give you similar returns as in the past is something which this question which left unanswered. 

BT: What are the other key advantages of investing in SGB vs other gold forms? 

ND: Well, gold definitely has been once in everybody’s portfolio, and most of these asset classes have given similar kinds of returns ETFs and mutual funds tend to give you a little lower return because they have management fees built into this. So every year, you lose about 0.5.6 per cent in terms of management fees. So if you are locked in for five years, you tend to underperform by at least three to four per cent in that session. Also, in this year's union budget, the indexation benefit of gold has gone away and will be taxed at a marginal rate from 1 April. So the kind of benefit you are getting in ETFs and mutual funds for gold that is no more available from 1 April. So they are not very lucrative in terms of the taxation point of view that makes Sovereign Gold Bond very lucrative because it has an indexation benefit, an interest rate of 2.5 per cent in coupon and after eight years horizon, the entire gains are tax-free. 

Now the other revenue to look at is jewellery. So the making charges in today's world is around, say, about Rs 1500 to 2000 per gram which is about when you buy the jewellery you lose about 10 to 15 per cent in terms of jewellery making charges, and if you compare with bars and coins, there is always a risk of Purity. There is always a risk of what you've bought. Besides, you get charged three per cent GST on it. So, if you have a reasonably long horizon of five to eight years, SGBs make great sense. However, if you want to take a tactical move and invest for two years, you may look at other options.