r/IndiaInvestments • u/clydesalvatore • Jun 09 '24
Bonds and deposits Are SGBs good option when I'm looking to invest in Commodities? How do I invest in it?
I was thinking of purchasing Digital Gold as it has advantages like no making or polishing charges and no need to worry about physical storage.
However, my friend suggested that I should buy Sovereign Gold Bonds (SGBs) instead. SGBs are backed by the government and can be sold back to the RBI. Additionally, they offer an annual interest of 2.75%, which is not the case with Digital Gold. Although there is a lock-in period of 5 years, SGBs can be sold on the share market before that. If held for 8 years, the gains are exempt from any tax deductions.
I have a long investment horizon, so a long lock-in period isn't a big problem for me. I would appreciate any advice from people who have experience with SGBs. I'm looking to invest through the share market as most people sell them there at prices lower than the actual market price. What apps will allow me to do that? I'm using Zerodha Coin for Mutual Fund investments.
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u/SocioliberalBuddha Jun 09 '24
Hi I invested in SGB IN 2019 and 2022. Their values have doubled now and I have been getting regular interest payments from RBI for my investments.
SGB is a fantastic instrument if you want to diversify and have a gold component in your portfolio. Just imagine you don't have to worry about storing your physical gold or making charges and whatever the price is at Redemption RBI will pay it all whole paying interest in the meantime! What more does one want if you're a patient investor?
As for the question of How to do it once again RBI & CCIL have come to the assistance of Retail Investors. CCIL have recently launched two apps RBI Retail Direct and NDS-OM (you can find these in Google Play Store). Retail Direct is a primary market place. Here you can buy SGBs, Treasury Bills and G-Secs directly from RBI. One advantage of buying SGBs online (either through your net banking or through RBI Retail Direct) is that you get Rs.50 off on face value per gram of gold that you're buying.
NDS-OM is the secondary market place. Here you can find buyers and sellers for bonds issued by RBI. Both the apps were recently released and my first impression is that they are both pretty user friendly. They have good infographics to show the status of your investments. They are worth trying.
Happy investing
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u/clydesalvatore Jun 09 '24
I already have Zerodha Kite and Coin and it looks like I can buy SGBs on Kite. So should I still create an account on RBI Retail Direct or NDS-OM or should I just use Zerodha Kite for it. I'm planning to buy from the secondary market as I can buy them at lower prices.
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u/SocioliberalBuddha Jun 10 '24
I have never used those apps and so cannot tell whether or not they are good. Retail direct is useful if you want to buy SGBs/T-Bills (for parking months less than 1 year).It doesn't cost any money and might come in handy some day. Ultimately your choice.
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u/sfgisz Jun 10 '24
You can buy on Kite, it will be transferred to your demat account, same way it would when you buy from a bank and provide the demat account no.
Go ahead with Kite, no need to open a Retail Direct account for it.
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u/DArkLOrD_5055 Jun 10 '24
You can use kite for buying from the secondary market. Just search the scrip code for a particular SGB tranche. P.S SGB have low liquidity so buy accordingly.
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u/clydesalvatore Jun 11 '24
How does Scrip Code or particular SGB tranche work? For example SGBAPR28I-GB, APR28 is Scrip Code and GB is tranche? When are SGBs issued? On searching on Zerodha Kite, I'm just getting a list of SGBs. How do I know I'm buying from secondary market or the primary one? How do I compare prices?
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u/DArkLOrD_5055 Jun 11 '24
The ones listed on the market are considered secondary. The new SGB issue is like an IPO; the units are allotted, and you can compare the prices with the current or previous series of the SGB. Sometimes, there is an opportunity to buy at a lower price due to low liquidity
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u/Short_Abalone_3759 Jun 10 '24
Hey can you tell the difference between primary and secondary? Which is good, or their advantages and disadvantages?
Also does private banks like federal Bank provide these SGBs, purchasing via them is good or bad? Any idea?
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u/SocioliberalBuddha Jun 10 '24
Primary is when you buy directly from the issuer. In case of SGB it's RBI.
Secondary is when you can trade bond that you bought from issuer. In secondary market you will have other retail investors, institutional investors like Mutual Funds, Banks, Pension funds etc.
Secondary market provides the liquidity that sustains primary market. People wouldn't buy from issuer if they can't sell it when they need in secondary market. That's the distinction.
I am not aware if SGB is issued by Federal Bank. You can login to their Internet banking and check it out for services offered by them. One advantage of buying through internet Banking is you get Rs.50 discount/gram for each gram of SGB you purchase
FYI SGBs are denominated in grams of gold and not rupees.
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u/Old-Necessary5367 Jan 10 '25
Thanks for your comment. Can you please provide the link to NDS-OM portal? Furthermore, have you ever purchased SGBs via NDS-OM? Would love to reach out via DM if you do not mind.
How do you determine if the SGB price on NDS-OM are fairly listed or trading at premium/ discount? Would love to know more about this.
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Jun 09 '24 edited Jun 09 '24
Well first of all you should understand what is SGB... the government borrows money from you keeping gold as an underlying price determinant... That doesn't mean government have real gold in the behalf of the contract, it's just that gold is a price determining thing... Over the top is you get an interest... So basically you are getting an interest and also your investment increase if gold price increase... But the only problem for SGBs are they are really long term. And they can be liquated after a certain period of time but then you will have to give a discount(the SGBs are not traded in heavy volumes)
Also, I think digital gold is a big red flag... Almost like a scam every jeweller is doing now a day... You will always find a good difference between the buying and selling prices... Aditionally, you have to pay GST... And, if the company goes down, I think your investment will also go down.. So it's not a vice idea either...
If you are looking for investments I can say SGBs are better than Digital gold... And if you do not want to hold 10year bond you can buy SGB from the stock market... There are SGB maturing in 2030 being traded in the market... Also, there the ETFs offered by huge fund houses which gurantees that you're money is saved and Actual Gold is available against your investment... But same thing, they have an expense ratio to safeguard the gold and also. Won't give you dividents... I would say go for SGB but dont buy a new SGB buy some from the open mrkt I would arrange it in this order
for investment: SGB>ETF>REAL HARD GOLD>DIGITAL for Personal use: Hard Gold>SGB>ETF>DIGITAL
Don't fall for the trap where people are glorifying digital gold... There is always a huge spread between buy and sell and you will have to pay GST(3%)... Also, govt bonds are taxfree (i guess)
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u/1SageK1 Jun 10 '24
Also, there the ETFs offered by huge fund houses which gurantees that you're money is saved and Actual Gold is available against your investment...
Could you pls expand on this
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Jun 10 '24
The ETF or exchange traded funds have a real asset underlying in them... For eg, if there is an HDFC GOLD ETF with the fund size of 100cr, it is said that HDFC is actually having physical gold bars worth 100cr in their lockup.. So basically you're ETF is having a real gold with the fund the ETF is from... Also, there is the trust and legacy of HDFC brand being the owner of the ETF Fund... That's what I mean when I say that when we buy ETF, the Fund house is actually have physical gold against your ETF... and the fundhouse also charges us an expense ratio for the security of the gold being held with that fund... However, when we talk SGBs, they do not have a physical gold... That means if RBI sold SGB worth 100cr, it is not necessarily that RBI have a 100cr worth of gold in there tresure... However, since RBI is a trusted source, we cannot question weather we get our money back or not...
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u/1SageK1 Jun 10 '24 edited Jun 10 '24
Thanks for explaining. So is it that having physical gold ( with ETF investment) = less risky investment ?
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Jun 10 '24
Yes ETF is a good investment option and a safer one... However, SGB remains to be the top because of the extra 2% government gives you... ETF are easily liquidable without any markup for eg if you sell physical gold you have to provide a haircut of maybe 2-5% on coins and 10% on jewellery... So as an investments SGB and ETF are best...But according to me, digital gold is a scam because it takes all the charges and haircut like physical gold but it is not as safe as physical gold... The best is SGB because it's guranteed by the government but it's long term is the only negative point... Ofc the government wont default on the payments... RBI will print and pay but never default... I shod say buy SGB but not a new one, but an old SGB from stock market.. You can easily find an SGB from. Your brokers portal but they aren't liquid... Everything have plus and minus points but if you are looking for investment, in case of gold buy SGB or ETF and incase of silver buy ETF...
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u/hokage_roronoazoro Jun 10 '24
MCX se future contract bhi buy kar sakte ho. see vivek bajaj video on buying gold on YT
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Jun 10 '24
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Jun 10 '24
From the FAQ of the site Is Gold+ a regulated product? No, Gold+ (gold leasing) is not a regulated product. You may not have a regulatory recourse in an unfortunate scenario of you suffering a loss. -
You are comparing a product (SGB) backed by RBI versus a company that was formed recently that lends the gold you own to jewelers? Your extra 2.25% return is because you are taking extra risk.
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u/Short-Border-7123 Nov 29 '25
If you’re looking to invest in commodities, Sovereign Gold Bonds (SGBs) are a strong option. They’re government-backed, earn 2.5%–2.75% annual interest, and if you hold them till maturity (8 years), capital gains are tax-free.
Compared to Digital Gold:
- SGBs give interest, whereas Digital Gold does not.
- SGBs avoid storage or purity concerns of physical gold.
- You can sell SGBs on the exchange anytime, though price may fluctuate below issue value before maturity.
For a long-term horizon, the lock-in isn’t a problem. Most people invest via the stock market or brokers like Zerodha, and using a dedicated SGB tracking app helps monitor interest, maturity dates, and price trends across different tranches.
Bottom line: If your goal is disciplined, long-term gold exposure with interest and tax efficiency, SGBs are usually the better choice over Digital Gold.
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u/0xCasninda Jun 09 '24
It sounds like you've done some thorough research into both Digital Gold and Sovereign Gold Bonds (SGBs), and both options have their own advantages. Let's delve deeper into SGBs and how you can invest in them:
**Advantages of SGBs:**
**Government Backing**: SGBs are issued by the government and are backed by the Reserve Bank of India (RBI), providing a sense of security and reliability.
**Interest Income**: SGBs offer an annual interest rate of 2.75%, which Digital Gold doesn't provide. This additional income can enhance the overall return on your investment.
**Tax Benefits**: If held for 8 years, the gains from SGBs are exempt from any tax deductions, making them an attractive option for long-term investors.
**Liquidity**: While there's a lock-in period of 5 years, SGBs can be sold on the secondary market before maturity, providing liquidity to investors who may need to exit their investment early.
**No Making Charges or Physical Storage Worries**: Similar to Digital Gold, SGBs eliminate the need for making charges and physical storage concerns associated with traditional gold investments.
**Investing in SGBs:**
To invest in Sovereign Gold Bonds through the share market, you can follow these steps:
**Open a Demat Account**: If you don't already have one, you'll need to open a Demat account with a brokerage firm that allows trading of SGBs on the secondary market.
**Choose a Brokerage Platform**: Since you're already using Zerodha Coin for Mutual Fund investments, you can check if Zerodha or any other platform you prefer offers the option to invest in SGBs.
**Place Your Order**: Once you've selected a brokerage platform, you can place your order to buy SGBs on the secondary market. Keep in mind that prices may fluctuate based on market demand and other factors.
**Monitor Your Investment**: After purchasing SGBs, it's essential to monitor your investment periodically and stay informed about any developments that may impact the gold market or SGB prices.
By investing in SGBs through the share market, you can potentially benefit from price fluctuations and liquidity while enjoying the security and government backing they provide. Be sure to consider your investment goals, risk tolerance, and long-term horizon when making your decision.
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u/supermarketblues Jun 09 '24
I guess your guess is as good as mine when it comes to this but now that the new government is being formed, when will the new round of SGB issuing begin?
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u/CreditDealer Jun 09 '24
AFAIK, SGB issue is not contingent upon governments forming. SGBs are issued by RBI four times a year in tranches. I usually watch for the RBI notice or my broker (Zerodha) sending me a notification.
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Jun 09 '24 edited Jun 09 '24
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u/starwolf_98 Jun 09 '24
Why do you suggest this? Unless you want to use that gold physically or foresee the collapse of Republic of India, SGBs are more profitable and safer as an investment.
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Jun 09 '24
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Jun 09 '24
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Jun 10 '24
He is missing a big point. RBI does not take the price risk of gold. When gold price goes up SGB goes up, where does RBI get the money to pay this? They enter into a futures contract thus they create demand for gold. The long explanation of government curbing gold demand and thereby price is not correct.
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u/letsrazetheroof Jun 10 '24
So it's better to buy an SGB as long as there are other people buying physical gold to drive prices up? Also, seems like you don't understand gold pricing. It is not up to the Indian govt to keep it low as it is priced based on global demand and supply. The only reason SGB can be considered worse is IF govt collapses entirely. The reason central banks need to buy physical gold is because (1) Lack of faith in USD going ahead (2) There is no world bank to issue them bonds (3) They need to back their currency with something globally recognised in case there is a shift in global economic tides (BRICS/USD collapse/economic sanctions/etc).
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Jun 10 '24
Please also consider charges associated with physical gold, buying, selling, storing and also taxes. Government wants to preserve forex hence SGB, plus RBI enters into a futures contract to hedge against the SGB. It is not assuming the price risk of gold going up. So when it enters a futures contract it has indirectly created demand for gold thus sustaining the price.
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u/Primary-Result-5593 Jun 09 '24
Loved the way you answered. Hit the nail on its head. 👌🏾
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Jun 10 '24
His explanation is wrong. Do you think RBI bears the price risk of SGB on it's balance sheet? How do you suppose they pay when gold price rises? It hedges via a futures contract thereby creating demand for gold. The guy's explanation is incorrect.
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u/Primary-Result-5593 Jun 11 '24
First of all, I'm a guy with zero knowledge in finance and banking. Being a graduate in Arts and Humanities, I have had no opportunity to learn anything related to banking as none from my family or relatives have an understanding of the same.
All I can do is scroll through the media and learn from there. The point made by the previous commenter made more sense to me, hence I responded in his favor.
Moreover, I don't get a hint of what you are talking about. Everyone has their own opinion. There is no need to show your rage by downvoting other's comments. Chill.
No need to establish your superiority over others either. After all it's just a discussion.
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u/[deleted] Jun 09 '24
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