Sovereign gold bonds (SGBs) are one of the alternative ways in which you can invest in gold. As an asset class, gold has a reputation of being a safe haven and providing a safety net in times of need.

This week, the Government of India announced issuing SGBs for subscription in two tranches, Series I and Series II. The subscription dates for Series I and II are from June 19-23, 2023, and September 11-15, 2023, respectively.

Let us see how viable this investment option is for the elderly.

SGBs, given that they are in the digital form, certainly won’t hold the same traditional value as physical gold in the form of jewellery. But as an investment, they would fetch you guaranteed returns. Individuals can buy it a minimum of 1 gram and a maximum of 4,000 grams (4 kg).

So, are SGBs a better investment option than physical gold or even gold exchange-traded funds (ETFs)?

Says Nidhi Manchanda, certified financial planner, “Compared to other gold investment options like physical gold, digital gold, gold ETF and/or mutual funds (MFs), SGBs offer two major advantages. One is that they offer interest income over and above the capital appreciation, and the second is the tax exemption of capital gains on maturity.”

SGBs offer interest of 2.5 per cent per annum payable half-yearly (1.25 per cent every six months) on the issue price at which the SGB was launched by the Reserve Bank of India (RBI).

It should be noted that this interest is taxable under Income-tax Act, 1961, as per one’s tax slab rate, whereas the capital gain on the sale of SGB after maturity is tax-free to the individual.

For long-term capital gains (LTCG), one can also avail of the indexation benefits on the transfer of SGBs.

Another benefit that SGBs offer is that one can also pledge them for a loan. Also, unlike the physical form of gold, SGBs do not involve making costs, while also offering the surety of purity as well as safety from risks of theft.

Should Senior Citizens Invest In SGBs?

Factors such as time horizon, taxation, and income from investment are important things that the elderly should consider before deciding to invest in SGBs.

Says Manchanda: “Whether senior citizens should invest in SGB bonds or not should depend on their investment horizon. In order to get the tax exemption, senior citizens should invest only if their investment horizon is eight years. If looking out for some short-term investment in gold, one can invest in gold ETFs or gold MFs.”

She adds: “Economic uncertainty, change in interest hike cycle, stress in the US banking sector, and geopolitical uncertainties have led to a surge in gold prices recently. There could be some correction in gold in the short- to medium-term, but in the long term, it is still expected to have a strong momentum. Investors can look at having around 10 per cent exposure of gold in their portfolio.”

So, if SGBs fits into your criteria of meeting a financial goal, you could buy them from designated post offices, scheduled commercial banks (except small financial banks, regional rural banks, and payment banks), Clearing Corporation of India Limited (CCIL), Stock Holding Corporation of India Limited (SHCIL), National Stock Exchange (NSE), and the Bombay Stock Exchange (BSE). One can purchase it directly or through agents as well.

If one misses out on buying SGBs when the issue opens for subscription, they can buy it from the secondary market from the aforementioned stock exchanges. However, SGB prices would be different from the issue price because in the secondary market, the prices are determined by the supply and demand factors, much as in the case of other securities.