Are SGBs a good way to invest in gold?| Question of Money by Aarati Krishnan| Episode 22

Explore the world of Sovereign Gold Bonds (SGBs) with Aarati Krishnan in this insightful episode of Question of Money! 📈

Introduction: 0:00 – 01:38
Return expectations from SGBs – 01:39 – 03:32
Gold v/s stocks and bonds – 03:33 – 05:30
What are gold ETFs? – 05:31 – 06:40

Discover the unique features of SGBs, where the Government of India borrows based on the Indian gold price. Aarati breaks down the returns, highlighting the 2.5% annual interest and the potential for capital appreciation based on gold prices.

However, she emphasises the importance of not relying solely on past performance, issuing a crucial disclaimer: “Past performance is no guarantee of future returns.”

Learn about the limited buying windows for SGBs and the specific redemption times set by the RBI. Aarati delves into the uncertainties surrounding gold prices, discussing the factors influencing returns, including global gold prices and Rupee depreciation against the US dollar.

In comparing SGBs to other gold investments, Aarati addresses the role of gold as a portfolio insurance, cautioning against overallocation. She suggests a 5-10% allocation for those with risky assets like equities.

Discover why owning gold in digital form or through Gold ETFs might be a wise choice, with a focus on avoiding making charges and optimising tax benefits. Uncover the advantages of SGBs over ETFs in terms of tax exemptions on capital gains.

Join Aarati Krishnan in navigating the world of SGBs, gaining valuable insights into their returns, risks, and how they fit into your investment portfolio. Don’t miss this episode for a comprehensive understanding of Sovereign Gold Bonds!

(Host: Aarati Krishnan, Producer&edits: Anjana PV, Camera: Bijoy Ghosh & Siddharth Mathew Cherian)

#investing #Gold #SovereignGoldBonds #FinancialWisdom #SovereignGoldBonds #GoldInvestment #RBIGold #SGBReturns #InvestingInGold #GoldPriceTrends #PortfolioDiversification #FinancialPlanning #SGBMaturity #GoldETFvsSGB #RBIInvestments #GoldMarketAnalysis #RupeeDepreciation #SafeHavenAsset #PreciousMetals #IndianGoldMarket #CapitalGainsTax #GoldMarketVolatility #LongTermInvesting #SGBBuyback #GoldPriceForecast #DigitalGold #RiskManagement #GoldBackedSecurities #AssetAllocation #financeeducation

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Recently a set of sovereign gold bonds or sgbs issued by RBI in 2016 matured investors in these bonds made a 15% per anom return much better than any FD or even some Equity Funds people are asking today should they invest in the current series of sgbs this is the time to give

The disclaimer past performance is no indicator of future returns hi I’m arti Krishnan and today we are going to talk about sovereign gold bonds how they get their returns and how they compare to other ways of investing in gold sgbs or sovereign gold bonds are government of India borrowings which

Give returns in terms of prices of gold so this is how sgbs work you buy the sgbs issued by RBI based on the current price price of gold PR gram in the market five or eight years later the sgbs are redeemed at the price of gold

As on that date apart from this the government also pays you an annual interest of 2.5% on the face value of the sgb so today if you subscribe in the February 2024 sgbs at 6263 per gram you will get an interest of about 16 rupees a year

For the next 8 years you can exit this sgbs either at the end of 5 years when RBI offers a buyback window or at the end of 8 years when they actually mature the price you’ll get per sgb will be the prevailing price of gold at that

Time now suppose gold has become 12,000 rupees per gram at that time when you’re getting out then you’ll make a return of 8% perom based on your Buy price of 6263 can you be sure that gold prices will be at 12,000 rupees per gram say 8 years later nobody can tell you right

That is why the past returns of sgbs cannot be extrapolated into the future so what kind of returns can sgbs give you how do you arrive at that many people in India think that gold prices go only one way and that is up they’re quite wrong actually the gold prices in

India depend on two factors the first is how Global prices of gold are moving in the international market India Imports most of its gold so the domestic gold price is detered mostly by global gold prices the second factor is the rupees movements against the US dollar if the rupees depreciating against the US

Dollar domestic gold prices tend to go up and investors in Gold make a higher return if you look at the past price movements of gold in global gold prices you know that about 20% of the years since 1990 Gold has actually made a loss so the thought that it always goes up is

Wrong secondly about 30% of the years gold has given less than a 10% return therefore there is a half and half chance that you will not get to a double digit return if you invest in gold this apart what about the rupee depreciation Factor across the last 30 years the rupe

Is depreciated at the rate of about 3 to 4% a year against the dollar so this has added to the gold price returns also in future if this kind of depreciation sustains then you will get an extra return on gold prices otherwise you may not so how does gold as an investment

Compared to stocks or bonds you should be aware of one key difference in stocks actually the trend over the long term is upwards because the earnings of the companies that are backing those stocks tend to go up over time in the case of bonds the bonds are backed by interest

Payout so there is a cash flow to the investor in the case of gold there is neither an earning nor a cash flow to actually back your Holdings Therefore your gold price returns are determined wholly by demand and Supply factors and how they change over time so having said

All this there are only two reasons why you should invest in gold in any form the first is basically as portfolio Insurance Whenever there is a big Global crisis talk of banking collapse or a housing crisis like we saw in 2008 gold prices tend to shoot up internationally

That is when domestic investors also make a lot of returns but insurance premium can never be 100% of your savings right so that is the reason why you should invest only 5 to 10% of your portfolio in gold and not more than that now the second big reason why many

Indians invest in gold is for weddings right they’re saving towards buying jewelry or they want to gift Jewel or gold at the time of the wedding now if you’re looking to buy gold for weddings the Temptation is to buy physical gold bars or jewelly and stock it right but

What happens is when you buy physical iCal gold you incur a lot of making charges wastage charges and so on and so forth at the time you want to actually sell the gold and get cash it becomes very difficult because the Jeweller takes it back at a hefty discount many

Jewellers also refuse to give you cash for your jewelry and they’ll only allow you to exchange it against new purchases when you buy gold in digital form either in the form of sgbs or gold ETFs you don’t suffer from these disadvantages these are basically exchange traded mutual funds that invest in gold and

Allow you to track gold price returns just like sgbs only thing is they don’t pay you any interest there’s one respect in which sgb is vastly superior to ETFs because the government is floating them the government exempts any capital gains on sgbs completely from tax so if you

Make a 15% return from sgbs you get to retain it completely well whereas in Gold atfs if you make the same 15% return the return will get taxed at your slab rate because that is the taxation structure for ETFs but then many people who are active investors in Gold prefer to invest in

ETFs over sgbs because they can buy gold at lows and sell it at highs with sgbs you forced to buy sgbs only when the RBI issues them and redeem them at a time that RBI chooses so this Flex ibility in actually trading at lows and highs makes

Some people prefer gold ETFs to sgbs based on whether you plan to be a Buy and Hold investor or an active investor you should make the choice between sgbs and gold ETFs to own gold