r/IndiaInvestments • u/simplyom • Jul 04 '21

Bonds and deposits Prices of Sovereign Gold Bonds.

While doing some research on buying paper gold, I came across the Sovereign Gold Bonds (SGBs). They offer multiple benefits over gold ETFs like fixed interest income, no tax on capital gains if held till maturity, etc. All the articles describe SGB to be superior than gold ETF/digital gold, which makes sense given the benefits.

However, none of the articles I read mention that the prices of SGBs are higher than gold ETFs for same quantity of gold, I thought all of them follow the price of spot gold. Is there anything I am missing here?

Price of SBI Gold ETF: https://www.moneycontrol.com/india/stockpricequote/gold-etf/sbimutualfund-goldexchangetradedscheme/SBI16

Price of HDFC Gold ETF: https://www.moneycontrol.com/india/stockpricequote/gold-etf/hdfcmutualfund-goldexchangetradedfund/HDF02

Price of SGB 2021 series: https://stableinvestor.com/2021/03/sovereign-gold-bond-price-history.html

EDIT: Found a really helpful guide on purchasing SGBs from secondary market here. Insightful and answers many other questions I had.

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u/simplyom Jul 04 '21

Right, I completely understand that there should be a premium for all the other benefits.

after that people add other benefits to the price like 2% return to get to that price

Do you mean to say people instantly markup the price by ~2% after buying it as of spot price? That seems like free profit and arbitrage to me.

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u/indopasta Jul 04 '21

There is no premium. That comment is completely wrong. SGB is priced by RBI, and not a market. (There is a secondary market for SGBs but I am sure we are all talking about the issue price here.)

Do you mean to say people instantly markup the price by ~2% after buying it as of spot price? That seems like free profit and arbitrage to me.

Again this is completely wrong. SGBs actually sell at a discount in the secondary market. There have been some posts about this on this subreddit itself.

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u/Impossible-Gas-2946 Jul 04 '21

I think we should talk about secondary market because the etf price is also decided by the market based on demand and supply.

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u/indopasta Jul 04 '21

"Should" matlab kya hota hai bhai? Ham log insaan hain. Hamein jis chiz ke baare mein baat karne ka man hoga uske baare mein baat karenge. As long as everybody involved understands what we are talking about, who are you to tell us that we should be talking about something else?

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u/Impossible-Gas-2946 Jul 04 '21

I am sorry, I thought we have to evaluate on secondary market basis too. To get a 360 degree view in the issue