SGBs fetch higher returns than gold ETFs, more taxpayer-friendly – BusinessLine

Get businessline apps on
Connect with us
Connect With Us
Get BusinessLine apps on
comment Comments
Gold hit an all-time high recently in the domestic market i.e., the continuous contract of futures of the yellow metal on the Multi Commodity Exchange recorded a high of ₹60,455 on March 20. It closed at ₹59,716 on Monday. In the domestic market, year-to-date (CY23), the gold has risen 8.5 per cent, whereas in dollar terms, it appreciated nearly 9 per cent. The investors who had exposure to gold, reaped benefits as the precious metal gained 15 per cent in rupee terms even as it could only appreciate by nearly 2 per cent versus the dollar in FY23.
Experts typically advocate allocation of gold as part of individual investments in the overall portfolio to provide stability during tough times and to serve as a hedge against inflation. The recent amendments in the Finance Bill, 2023 has rendered gold funds unattractive vs. sovereign gold bonds (SGBs) which enjoy capital gains tax exemption for returns. The latest redemptions reveals the investment in SGBs fetched higher returns than that of gold ETFs.
Explained: Gold exchange and EGR
Last month, the Reserve Bank of India (RBI) opened the window for premature redemption of SGBs of three series. Each one has returned over 12 per cent on their respective redemption date (refer table for data) and have outperformed the ETFs during the corresponding period.
The return on SGB 2016-II, for instance, whose redemption date was March 29, was 12.8 per cent (XIRR including interest paid).
Sovereign Gold Bond March 2023 series is open: Should you invest?
Gold investment strategy: How to make this a golden Diwali
The capital gains are exempt from tax, if investors choose to redeem through the windows opened by the RBI after the lock-in of five years. Once five years is completed in an SGB, RBI will open premature redemption windows one month before the interest payment date. Since the interest payment is done semi-annually, investors will get a chance to redeem two times a year. The interest rate is 2.5 per cent per annum on the issue price and paid semi-annually.
Apart from the interest, which no other gold-related investment offers, another important advantage is safety as they are backed by the government, and it can be held in demat form.
comment Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.


Leave a Comment

Your email address will not be published. Required fields are marked *