Investing in Digital gold in electronic format through ETFs and gold funds is considered a better investment option over buying physical gold as the latter entails high costs in the form of making charges, which are deducted at the time of selling the gold product.
Digital gold vs sovereign gold bond or SBGs are gold bonds issued by the Reserve Bank of India (RBI) on behalf of the Government of India. The gold in this bond is sold on a per unit basis such that every unit derives its value from underlying one gram gold with 999 purity. The cost is calculated by taking an average of closing prices of gold for the latest three working days preceding the subscription period. These closing prices are published by the India Bullion and Jewellers Association Limited (IBJAL). The redemption price is also calculated on the latest base data from the same source.
How SGBs Work
SGBs are issued by the RBI in different tranches during the financial year. These securities are made available via banks, brokers, post offices and online platforms. A discount of INR 50 per gram is offered to investors who purchase them digitally to promote buying SGBs online.
It is important to note that the RBI brings new series of SGBs for sale in the market throughout the year. So, if you miss the last one announced, you can always wait for the next issue to be announced.
Benefits of Investing in SGBs
SGB is a good option for investors who wish to buy gold only for the purpose of investment. SGBs ensures the quality of gold is protected and investors are secured against risk.
They are also able to save on the cost of storing physical gold as these bonds are in a digital form and are kept in an investor’s demat account.
These bonds were introduced under the Gold Monetization Scheme in 2015. These bonds are issued in many tranches throughout the year by the RBI.
Each bond represents 1 gram of gold and thus allows the investors an option to invest in gold digitally.
In addition to the changes in gold rates, these bonds have an attractive interest rate of 2.5% per annum, which is paid semi-annually by the RBI adding to the yield.
Being backed by the government, SGBs are considered very stable.
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