Why Sovereign Gold Bonds Trading on Premium :Sovereign Gold Bonds (SGB) are considered one of the best ways to invest in gold. These bonds are issued by the Reserve Bank of India (RBI) on behalf of the Government of India, whose issue price is determined according to the market price of gold. Later these bonds can also be traded on the stock exchange. Recently, the prices of SGBs have been rising on the National Stock Exchange (NSE). During the last one-two days, the prices of SGBs are seen trading at a premium of up to 15% compared to the prices of physical gold.
Why are SGBs being sold at a premium?
There is no news of new SGB being issued after Budget 2024, while the provisions related to long term capital gains tax introduced in the budget have made it an even more attractive investment. Meanwhile, various speculations are being made in the market regarding the next issue of SGB. It is also being said that new SGBs may not be issued in future. In such a situation, many investors are willing to pay a higher price to buy the already available SGB instead of waiting for the new SGB to be issued. As a result, the prices of SGB on NSE are trading at more than the price of 999 purity gold.
Also read: Mutual Fund SIP: Investing Rs 2200 every month makes you a millionaire, tax saving is the icing on the cake
For example, on August 27, 2024, the price of SGBFEB27 (2.50% Gold Bond 2027) was Rs 8,300 per unit, while the price of 999 purity gold was Rs 7,186.4 per gram. This represents a premium of 15.49% over SGBFEB27. Similarly, other SGBs are also selling at premiums ranging between 4% and 15%. If you are also thinking of turning to the secondary market for buying and selling sovereign gold bonds, then it is important to keep some things in mind.
Also read: Mutual Fund Returns: Flexi Cap, Multi Cap or ELSS? Who is ahead in giving returns, what is the right option for you
Keep these things in mind while trading SGB
1. Be aware of taxation:If you buy and sell SGB from the stock market, tax is applicable on it. If you hold SGB for a period of 12 months or less, it will come under short-term capital gain (STCG) and will be taxed as per your tax slab. If you hold SGB for more than 12 months, it will come under long-term capital gain (LTCG) and will be taxed at the rate of 12.5%.
2. Focus on redemption:If you buy SGB from NSE and later redeem it in RBI’s buyback or final redemption window, it will be tax-free. In this case, you will have to show it as ‘Other Exempt Income’ in your ITR, but no tax will be levied on it.
3. Keep in mind the profit and loss:The prices of SGBs can fluctuate, especially if there is a shortage of new SGBs or changes in international gold prices. Therefore, it is important to keep the price fluctuations in mind when trading SGBs in the secondary market.
Also read: 5 lakhs were deposited in this retirement fund of HDFC by SIP of Rs 2600, only 50 thousand had to be deposited at once
4. Invest after understanding the risk: SGBs are considered a safe investment option, but if you are buying them at a premium, be cautious. Gold prices may fall in the future and your investment may go into loss.
Overall, the premium at which SGBs sell in the secondary market depends on several factors, including the scarcity of new SGB tranches, rising demand for gold, and the possibility of future price appreciation. Investors should keep taxation, redemption, and current market conditions in mind while trading SGBs. Investing with the right information and caution can make your investment safe and profitable.
