The latest tranche of Sovereign Gold Bonds is available. Here, are some frequently asked questions about SGBs

The Government of India has launched the Sovereign Gold Bond (SGB) Scheme 2023-24 Series II, which commences today and remains open for subscription until September 15. This scheme presents a secure alternative to owning physical gold and an opportunity for additional income. If you’re wondering where to invest here are a few frequently asked questions (FAQs) answered by Col. Sanjeev Govila (Retd), a Sebi-Registered Investment Advisor (RIA), and CEO, Hum Fauji Initiatives, a financial planning firm.

Who should invest in SGB? 

SGBs are suited for long-term investors who are looking for a safe haven asset and are willing to hold on to their investment for at least 5 years, preferably full 8 years to get the tax advantage of Zero capital gains tax on gains made.  

How much of the investment portfolio should be invested in gold, and how much out of that in SGBs? 

I recommend investing at least 5–10 per cent of one’s portfolio in gold. However, if you’re considering investing in SGBs, you should be comfortable being invested for the long term, preferably all of the maturity period of 8 years, to use the best benefits of SGBs. 

Also read: Sovereign Gold Bond 2023-24: 5 things to know about SGB series II that closes on September 15

Also read: Sovereign Gold Bond 2023-24 Series-II opens today: Check the issue price, discount and other details here

Also read: Sovereign Gold Bond opens today: What can you expect amid falling gold prices?

In the current market scenario when the equity market is all-time high, there is high inflation and global uncertainty, does it make more sense to invest in SGB?

It completely depends on individual investment goals and risk appetite. SGBs are a good option for investors who want to invest in safe asset, wants to hedge and diversify their portfolio when equity market is at all-time high, there is high inflation and global uncertainty. 

How has gold performed and what is the outlook? 

Historically, gold has been an excellent hedge against inflation and other economic concerns. Gold prices have been fluctuating in recent years but they have generally trended upwards. The outlook for gold in the future is uncertain, but many experts believe that gold will continue to be a valuable asset.  

What are the pros and cons of SGBs?

Like any investment, there are pros and cons to investing in SGBs. 

Pros: 

• Safe-haven asset: Gold is considered a safe-haven asset and it is issued by the RBI on the behalf of GOI. 
• No storage or security concerns: SGBs are held in dematerialized form, which means there are no storage or security concerns. 
• Interest rate & Maturity Benefit: An investor will get 2.5% interest per annum payable semi-annually and maturity is linked with market price of Gold. 
• Tax benefits: SGBs offer tax benefits, including exemption from capital gains tax if held until maturity. 

Cons: 

• No guaranteed returns: The returns on SGBs are not guaranteed, and they depend on the prevailing market price of gold at the time of sale.  
• Lock-in period of 5 years: There is a lock-in period of 5 years, so you cannot exit your investment before then. It is 8 years if want the capital gains tax benefit 

When can you exit? 

You can exit after a minimum of 5 years. However, it is tradable on stock exchanges, if held in demat form, and can be traded if enough volume for the tranche exists. 

What price do you get if you exit SGB via stock exchange?

The price that you get when you exit your SGBs via the stock exchange will depend on the prevailing market price of gold at that instance and may be influenced by the trading pattern at that time.