Investing in SGBs Vs Other Options
Investing in SGB vs other investment options (FD, real estate, physical gold, gold etf)
Hello friends and welcome to this podcast by Angel Broking.
Iss podcast mein hum SGB’s vs other investment options ki baat karenge.
Sovereign Gold Bonds, abbreviated as SGBs, are issued by the RBI to investors as a digital method of holding gold.
India mein, gold kaafi popular investment option hai. Log physical gold mein bhi invest karte hai - and this gold is then passed down through the generations. The Hindu calendar even devotes a day to buying gold, annually: dhanteras. Toh, investors ke liye, kaunsa option preferable hai? SGB? Ya physical gold?
In fact, how do SGBs compare with other popular investment options, such as fixed deposits and real estate, and other gold investment options such as physical gold and gold ETFs?
First, let's look at gold as an asset class versus the asset classes of fixed deposits and real estate.
SGBs versus FDs
Fixed deposits might score over SGBs when it comes to the investment term as FD may be 11 months to 5 years in most cases, whereas the investment term for SGBs is 8 years. Lekin investor apna SGB stock market pe bech bhi sakta hai, ya gift ya transfer bhi kar sakta hai.
Returns mein toh SGB has the potential to deliver quite a high yield. In 2012, the price of gold was Rs 3100 approx and in 2020, its price was 4800 approximately. Jin investors ne 2012 mein SGB le liya aur 2020 mein redeem kiya, unka toh kaafi earnings hua hoga. That being said, yeh bhi batana padega ki the price of gold fell to as low as Rs 2600 in the interim years.
Fixed deposit ke jaise hi SGB mein interest pay kiya jata hai, of 2.5% jo saal mein 2 baar pay kiya jata hai. Some investors might consider this quite competitive in relation to FD interest rates.
SGBs versus real estate
Real estate mein baat yeh hai ki investment capital kaafi lagta hain in most cases. SGB mein you can invest in as little as 1 gram of gold as compared to real estate jis mein you mostly always need lakhs of investment capital.
SGB ka value non negotiable rehta hai. Investors buy at the market price of gold and sell at the market price of gold. In contrast, real estate mein, there is usually some negotiation …
….not to mention there is the problem of zeroing in on locations ripe for growth. Kabhi kabhi Investors pump capital into an "upcoming location" falling prey to PR gimmicks that either overinflated the location's potential or make premature promises where the developments that are interested to make a location thrive, actually take longer in the making, thus stretching the investment term.
In fact in general the investment term for real estate is usually 10 years +.
Now let's look at the various methods of investing in gold as an asset class - how do Sovereign Gold Bonds score as compared to physical gold and gold ETFs?
Sovereign Gold Bonds versus physical gold
SGBs toh physical gold ko kafi easily defeat kar sakte hai on the basis of the following:
Physical gold can be stolen or you could lose it - Sovereign gold bonds are digital and issued in your name and therefore are less susceptible to loss or theft. Agar aap somehow apna Certificate of Holding ghuma bhi dete ho, the RBI maintains a record. Your gold holding is safe and sound!
Physical gold mein, making charges ke karan, investment cost badh jata hai.
SGBs are issued for gold of 999 purity toh value mein kabhi bhi question nahi aa sakta lekin physical gold mein purity issues kabhi kabhi aa jaate hai. Agar aap bade quantities mein invest kar rahe ho toh locker bhi lena hota hai… kharcha badh jaata hai. At the end of the day you want to keep your investment cost as low as possible.
However, there is the fact that your physical gold might be more liquid as compared to SGBs which have an 8 year investment term.
Sovereign Gold Bonds versus gold ETFs
These are both digital forms of holding gold but are different in some ways. Gold ETFs (which stands for exchange traded funds) are a type of mutual fund investment which is traded on the stock market on a daily basis. This direct market exposure makes Gold ETFs comparatively riskier than SGBs. That said, remember that high exposure also has the potential to deliver high yield.
Additionally being mutual funds, there is some amount of fee that needs to be paid - by way of the expense ratio paid to the mutual fund house.
Investment term wise gold ETFs definitely score over SGBs because gold ETFs can be withdrawn or redeemed at any time.
Moreover when the day for redemption of the SGB arrives the investor has to go ahead and redeem at whatever the price of gold is - what if (as we discussed earlier) the price of gold falls? In contrast, gold ETFs mein investor apna redemption date choose kar sakta hai… he can sell or redeem jab market up hai.
Toh yeh raha an honest comparison of SGBs versus various other investment options. Ab aap apne unique Investor persona ke hisaab se decide kar lo ki aapke liye kaunsa option … ya kaunse options… preferable hai. Vaise investment portfolio ko diversify karna kaafi important baat hai, so you should consider investing in multiple asset classes.
Dost any market-linked investment mein risk hamesha rahega. The good thing about SGBs is that no matter what, the units of gold that you hold cannot change even if their price changes. That said, the price is at risk of change. Given this risk, hamesha spare capital se hi invest karna that is capital that you have managed to save after keeping enough aside for daily living and lifestyle expenses jaise ki food, house rent, utilities, transport to office, children's fees, any medication etc.
Doston aaj ke podcast mein bas itna hi. For more information about how to invest in SGB’s, common FAQs, and a guide to Sovereign Gold bonds, check out our subsequent podcasts.
Always remember to do your own research as you are doing by listening to this podcast. Fir milenge jald, tab tak ke liye goodbye and happy investing!
Investments in the securities markets are subject to market risks. Read all the related documents carefully before investing.