The government has officially discontinued the issuance of Sovereign Gold Bonds (SGBs), leaving many investors concerned about losing a secure and lucrative way to invest in gold.
With no fresh issuances expected, investors are now exploring secondary market options to acquire SGBs.
But is buying SGBs from the secondary market a smart move?
What factors should you consider before making a purchase? Financial experts break down the key considerations.
Is It Worth Buying SGBs from the Secondary Market?
Col Sanjeev Govila (Retd), Certified Financial Planner and CEO of Hum Fauji Initiatives, notes that SGBs currently trade at a slight discount compared to the gold price.
This makes them an attractive alternative to direct gold purchases, especially since they offer an additional interest payout.
For better returns, Govila suggests looking for SGBs trading well below their nominal value on stock exchanges like NSE or BSE.
However, investors should avoid paying excessively high premiums and check trading volumes to ensure liquidity.
If liquidity is low, they may have to hold their investment until maturity.
Alternative Gold Investment Options
If investing in SGBs through the secondary market doesn’t seem appealing, there are alternative gold investment avenues available.
1) Gold ETFs & Gold Mutual Funds – These provide better liquidity, tax efficiency, and avoid GST charges that apply to physical or digital gold.
2) Gold SIPs – Systematic Investment Plans (SIPs) in Gold Mutual Funds allow retail investors to invest gradually and mitigate market fluctuations.
“For those looking for flexibility and tax efficiency, Gold ETFs or Gold Mutual Funds are better alternatives,” says Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance.
Key Factors to Evaluate Before Buying SGBs in the Secondary Market
According to Sushil Jain, CEO of PersonalCFO.in, buying SGBs from the secondary market can be beneficial for investors with specific financial goals.
However, before making a decision, consider the following:
1) Maturity Date & Interest Yield
2) Interest Payments & Yield Considerations
3) Liquidity & Pricing Strategy
4) Tax Implications
5) Discounted Bonds May Not Always Be a Bargain
6) Future Government Gold Investment Schemes
Final Takeaway: Should You Buy SGBs Now?
If you’re comfortable holding till maturity, have assessed liquidity risks, and found a well-priced issue, SGBs from the secondary market can be a good long-term investment.
However, for those prioritizing liquidity, flexibility, and tax efficiency, Gold ETFs and Gold Mutual Funds may be the better route.
Tip: Always compare the SGB price with the current gold rate before investing and consult with a financial expert for guidance tailored to your investment goals.
