Sovereign Gold Bonds: How to invest in Sovereign Gold Bonds? How correct is it to buy SGB from the secondary market

Benefits of investing in Sovereign Gold Bonds Scheme: If you want to invest in gold, then the best and tax-efficient way can be to invest in Sovereign Gold Bond (SGB) issued by the Reserve Bank (RBI). SGB is the only way that not only gives you an opportunity to earn profit by investing in gold and its price increase, but you also get interest at the rate of 2.5 percent per annum on your capital. Not only this, if you keep SGB till maturity, then the capital gains on it are completely tax-free. And as its name suggests, the investment made in Sovereign Gold Bond is completely safe due to government guarantee.

How to invest in SGB

Sovereign Gold Bond There are two ways to invest in:

1. Primary Issue : During the primary issue Sovereign Gold Bond These are purchased directly from the Reserve Bank of India. The RBI regularly issues new gold bonds in different tranches several times a year. That means to buy SGB directly from the Reserve Bank, you have to wait for the next issue.

2. Secondary market : If you want to buy Sovereign Gold Bond during the period between one primary issue and another issue, then you can also buy it from the secondary market. Actually Those who have already bought SGBs but do not want to hold them till maturity can go to the exchanges to sell their holdings just like stocks, from where other investors can buy them.

Also read: Gold price today: What is the current support and resistance level in gold? What will be the trend in the coming days

Maturity period of SGB and discount in secondary market

The maturity period of SGB is 8 years. But those investors who do not want to keep it with them for the entire 8 years or want to withdraw money in between due to some need, they sell their holdings in the secondary market. Due to low demand of SGB in the secondary market, they can be purchased there at a discounted price. But before taking any decision in this regard, it is also important to understand many other things.

Also read: ITR filing: If you want to get refund easily after filing income tax return, then do this work now

Important things related to the secondary market of SGB

Buying SGB from the secondary market can be a bit complicated. Bonds issued at different times are available there, whose prices and demand conditions vary. It is possible that some of these bonds are going to mature in a year and some after 7 years. The current prices of gold and the future outlook also affect the prices of SGB. Therefore, the decision to buy SGB from the secondary market should not be taken only by looking at their price. The biggest problem related to their purchase and sale here is low volume and uncertain demand. For example, sometimes SGBs issued in certain installments can show zero volume for several days or weeks. It may also happen that the units of the bond of the maturity you want to buy are not available in sufficient numbers in the market. Apart from this, it is also important to keep in mind the brokerage fees while buying SGB from the secondary market, due to which the net return on your investment may be low.

Also read: Income tax: Before filing income tax return, understand your slab, how much tax will be levied in the new and old tax regime

Returns on SGBs bought from the secondary market

If you buy SGB from the secondary market, you still get 2.5 percent interest on it. But the interest is calculated on the basis of the original issue price, not on your purchase price. For example, if you have bought an old SGB with an issue price of Rs 5,000 for Rs 6,000, then 2.5 percent interest will be calculated on Rs 5,000, which will be Rs 125, and not Rs 150 as per Rs 6,000. That is, to find the actual yield or return on your investment, you will have to divide Rs 125 by Rs 6,000 and this return will be around 2.08 percent.

Income Tax Regime: Can you change your income tax regime even at the last moment? Know the method

Should one buy SGB from the secondary market?

Only those investors should think about buying SGB from the secondary market who want to hold them till the remaining maturity period. If after buying from the secondary market, you go to the exchange again to sell them, then not only will you have to pay brokerage twice, but in case of low demand, you will face difficulty in selling and will not get a good price. Apart from this, you will also not get the benefit of tax-free maturity amount. This is the reason why investors who do not understand all the pros and cons of buying SGB in the secondary market should stay away from it and wait for the next issue of RBI.