Invest

Sovereign gold bond Zerodha: Know About Benefits and differences

Ayushi Upadhyay

Created on 21 May 2020

Wraps up in 4 Min

Read by 28.6k people

Updated on 26 Feb 2024

Man went to buy sovereign bonds through zerodha

Unlike most countries, Indians have an unbreakable bond with gold. And one stunning fact is that the Indians hold about 11% of the world’s gold. This is more than the gold reserves of IMF, Germany, and Switzerland put together. But rarely do we realize the choice that exists in the purchase of gold. Gold can be purchased as physical gold, ETF, or in the form of sovereign bonds.

According to experts, every investor is recommended to hold at least 5% of his investments in gold or related securities. This will help one to diversify the risk in his portfolio. Now, it’s time to find answers to the most important questions. How do you invest in SGB? How it surpasses the holding of physical gold or an ETF?

Sovereign Gold Bonds

Sovereign gold bonds are issued by the Reserve Bank of India as an effective substitute for physical gold. The minimum denomination a person can invest in is 1 gram and the highest denomination an individual can invest in is 4 kg. The limits are the same for HUF. In the case of trusts and other similar institutions, the maximum limit is 20 kg per year. The SGB’s will be made available in the stock exchange, 10-15 days from its initial issue.

Investment in SGB is the same as buying physical gold or ETF. When you purchase gold in the physical form you will have to pay a lot in terms of stages and other costs. They are also subject to wear and tear. Similarly, every ETF charges 1% as holding charges annually. Thus, the return received from them is comparatively less. SGB, on the other hand, offers a 2.75% interest p.a. They are brought and redeemed at the original market price of gold. Hence, the chance of placing your invested amount at stake is minor. Adding to that you will be given a discount of Rs.50 per gram if you invest in it at the time of issue. On maturity, the amount will be transferred to your respective bank accounts.

A list of future issues of SGB's include the following,

Tranche	Issue Date
2020-21 Series-3	16-6-20
202-21 Series-4	16-6-20
2020-21 Series-5	11-8-20
2020-21 Series-5	8-9-20

Advantages:

Guaranteed interest will be credited to your account every year which is not available in other investments.
The investment or redemption can be made using your de-mat account itself.
Tax benefits attached to it makes the Sovereign Gold Bond more attractive.

Disadvantages:

A major disadvantage is the period of investment. 8 years of investment can be a huge mountain to be crossed for many investors.

What about tax?

The following are some important pointers concerning the taxation of SGB’s.

SGB’s are free from maintenance or other related charges and TDS.
No tax is to be paid when the bonds are redeemed at the time of maturity.
In the case of sale of bonds 3 years after its issue, tax is to be paid as per the tax slab.
20% is to be paid as tax if the bonds are sold before 3 years from the date of its issue. However, you will be eligible for indexation benefits.

How it differs

Factors	Physical gold	ETF	SGB
What are they?	They are usually purchased in the form of bars, jewels, and coins.	It is similar to a mutual fund, where the fund houses hold the assets and charges a maintenance fee for the same. They can be brought and sold through stock exchanges.	They are government bonds that are held in the books of RBI. Thus, making it free of any charge whatsoever.
Investment and returns	High investment due to the charges paid and relatively lesser returns because of wear and tear.	Low investment and low returns. Returns are subject to holding charges.	High returns with less investment.
Purity	Purity is always a question	One need not worry about it.	Not a point of concern at all.
Safety and Security	They should be safeguarded against theft and other wear and tear.	No need to worry as it is in electronic form.	The electronic format helps assure its safety.
Collateral	Yes, they can be used as collateral for acquiring the loan.	It cannot be pledged.	It can be pledged.

How to invest in Sovereign gold bond Zerodha?

Zerodha is a broking portal like may others, making your trading activities easy and convenient. The following are the steps to invest in sovereign gold bond Zerodha,

Initially, you will have to open a commodity trading account by paying a one-time charge of Rs.200. This can be controlled through your demat account.
Then log in using the credentials which are the password and user id. You can log in through the Zerodha kite app as well.
Then place the order wherein you state the quantity of your purchase.
You trade will be completed once you see the message stating “the order is accepted”.
You will have to pay a broker charge of 0.01% or Rs.20 whichever is lower.

So should you invest?

Sovereign bonds are a perfect go-to option for anyone who will stay invested for 8 years. If you have long term financial obligations to be met and are pretty sure that you will not need the insured amount at any time during the 8 years then you can put your money into SGB. Similarly, if you are not interested in the purchase of physical gold and looking forward to getting consistent returns, then you can purchase SGB. Having said all that, investing a tiny peck of your money will ensure the safety of your portfolio and diversification of assets in the long term. So why not invest in Sovereign gold bond through Zerodha?