Kirtan Shah on why RBI’s Sovereign Gold Bond Scheme is best form of gold investment

The RBI issues the Sovereign Gold Bond (SGB) on behalf of the government of India.

The Reserve Bank of India’s (RBI) last tranche of Series IV of its Sovereign Gold Bond (SGB) Scheme 2022-23, which was issued on March 6, is approaching the final date on March 10. This is the right time to know why Kirtan A Shah, founder of Credence Wealth Advisors, thinks that purchasing SGBs is the best option among all forms of investments in the yellow metal.

In a tweet on March 8, Shah answered a few key questions. Two of them are - should you buy an SGB and if yes, should you buy the new tranche or an older tranche?

The issue price for the new tranche has been set at Rs 5,611 per gram, with a Rs 50 per gram discount for investors applying online (making it Rs 5,561 per gram for online applications).

Also read: Sovereign Gold Bond Scheme: All that you must know before buying it

Comparing SGB to other forms of investments in gold and deliberating upon the pros and cons of each method, Shah recommended against buying physical gold or digital gold as the cons far outweigh the pros.

Although tangible, liquid, and easier to buy, physical gold runs a risk of theft, impurity, limited regulation, unfavourable taxation, high GST, additional making charges and inconsistent pricing. Meanwhile, although digital gold purchases have low-priced schemes, guaranteed purity, instant credit on selling and no need for storage, this type of gold investing has its own set of cons like high GST, unfavourable taxation, wide price spread and lack of regulation.

On the other hand, gold ETF, according to Shah is a slightly better option. With guaranteed market value, minimum investment as low as Rs 50, assured purity, no need for storage, no GST, amply regulated by SEBI, etc., problems like unfavourable taxation, tracking difficulties and meaningful expense ratio seem tolerable.

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The best option, says Shah, is investing in SGBs. Listing the pros of SGBs, Shah tweeted, “(i) Issued at a discount - Current tranche is at 5561 vs the current market price of 5611 (ii) Storage – You don’t have to bother (iii) No GST (iv) 2.5% interest paid by the government every year (v) Taxation – No capital gains tax if you buy during the launch or from the secondary market & hold it till maturity. But the 2.5% interest is taxed at the slab rates (vi) Sovereign guarantee.”

The only meaningful issue may be the illiquidity and purchase limits between 1 gm and 4 kilograms, where the investment is not backed by actual gold purchase.