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May 2, 2023

Over the previous 8 years, the average return on gold bonds was 13.7%

Over the previous 8 years, the average return on gold bonds was 13.7%

Over the past eight years of their existence, sovereign gold bonds (SGBs) have produced positive returns for investors. Since November 2015, investments in the 66 tranches of these government-issued securities have returned an average of 13.7% annually. Wealth managers claim that the rise in gold prices at this time, along with rising economic instability worldwide, has increased returns from this product.

According to an ET analysis of SGB returns, depending on the time of the investment, investors who funded the 63 issuances would have profited between 4.48% and 51.89% annualised. The government pays 2.5% interest for holding the bond, which is not included in these returns.

The most profitable investments were the first ones. For instance, in November 2015, at a cost of 22,684 per gramme of gold, investors purchased the first eight-year issue of SGB. Gold is currently being sold for $26,017 per gramme. That tranche, which is due for redemption in November of this year, has so far generated a return of about 125%. Amounts invested will be returned based on the price of gold at that time. With a maximum of 4 kg per fiscal year, one SGB is equal to one gramme of gold.

Due to the tax benefits SGBs provide over gold funds or exchange-traded funds, many wealthy individuals have invested in them.

Anup Bhaiya, MD, Money Honey Financial Services, states that after eight years, capital gains are not subject to tax on real estate. In addition, the government pays you 2.5 °A in interest based on the bond’s worth, while there is liquidity through listing and repurchase and no expense ratio to be paid.

Gains from other gold instruments are taxed according to a person’s tax bracket, which might result in a 30% tax for wealthy investors.

Sovereign Gold Bonds
First SGB issue startedNovember 2015
Primary issuanceAs an when announced by Govt
Tenure of SGB8 years
LiquidityThrough listed on stock exchange
Repurchase by government once in 6 months starting at end of fifth year
Capital GainsTax-free on maturity
5/10 year return of gold12.89% / 6.87%
Additional interest payment on bond2.5% / (taxable)

Through public issues that the government has announced, investors can purchase SGBs. Additionally, SGBs listed on the stock exchange are available for purchase by investors, with some of them trading at a discount to the spot price of gold. However, the volume in many of the issues is small and insignificant.

The government issued four SGBs in the prior fiscal year, but so far this year there has been no news of any new SGB issuances.

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