What is the best way to invest in SGBs and digital gold?

In India, gold is considered auspicious because it is purchased on auspicious days as an investment. Gold has entered the digital market, where one can purchase and sell it on digital platforms, without actually owning any gold. Sovereign Gold Bonds and Digital Gold are designed for investors who are looking for diversification and want to take advantage of the gold asset class’ potential through digital means.

This article will help you understand SGBs, Digital Gold, and if they are good investments for your portfolio.

What are SGBs (Digital Bonds) and SGBs?

1. SGBs:

This stands for Sovereign Gold Bonds.
The SGB allows investors to buy bonds by paying for the bond’s issue price in cash (upto Rs 20,000), by cheque, online payment or Demand Draft, or on the secondary market.
These are merely substitutes for gold that is measured in grams.
The stock is listed at the stock exchanges and comes with a guarantee from the sovereign.
These bonds can be held in either physical or digital form by investors. These bonds can be purchased through SEBI-authorized brokers or banks.
Investors will also receive 2.5% per annum. The bond will pay interest on its face value, semi-annually.
The SGBs have a term of 8 years. They can be prematurely sold to the RBI at any time after five years (on every date when interest is paid) or they can be sold on the secondary market.

Digital gold:

Digital Gold is the opposite of this. It involves buying gold online and holding it in a virtual form by paying an amount that is equivalent to the price of gold.
Digital gold can be purchased and sold on the open market at any time. There is also no lock-in period when holding digital gold.
Investors can purchase digital gold by making a payment online at any time.
SGB does not charge a transaction fee, but the gold price is higher. One can also do an instant fund transfer after selling gold. However, GST is still applicable.
The gold is backed up by these bonds and investors are allowed to take delivery of the gold at a cost.

Issuing Agency

For SGBs,

Reverse Bank of India, on behalf of Central Government, came up with Sovereign Gold Bond Scheme.
The bonds can be purchased through designated post offices and banks. They are also sold by the Stock Holding Corporation of India, and on the National Stock Exchange and Bombay Stock Exchange.

In the case of Digital Gold

In India, digital silver is primarily offered by three companies: MMTC PAMP (formerly Augmont Goldtech), Digital Gold India(SafeGold), and Digital Gold India.
They have partnered with Paytm and other service providers such as Google Pay, Amazon Pay and PhonePe to sell digital gold on their platforms.
In India, digital gold is not regulated.

Who should invest?

SGB Investment

Investors with a view to the long-term who are interested in investing in gold.
SGBs are a good option for investors looking to make a long-term investment and get a guaranteed return.
SGBs are only available to Indian residents, including individuals, Hindu Undivided Families (HUFs), Trusts, Universities and Charitable Institutions.

Digital Gold is a better investment for

Investors are those people who look for investments that do not have a maturity or lock-in period, and can earn profits by holding the investment for a shorter term.
The digital gold investment allows investors to benefit from the appreciation of gold prices.

When Should You Invest?

SGBs are available for purchase from the RBI or secondary market.
Every 2 to 3 months, the government issues bonds in tranches. Investors can then subscribe to SGB schemes.
Bonds that were issued earlier can be purchased by investors who wish to purchase at a later time. Only during the 9am to 3:30pm trading period can investors trade.
Investors are able to buy and sell digital gold at any time by simply visiting the website or app of the issuer. Digital gold, unlike SGBs can be traded 24/7 throughout the entire year

Investment criteria

Sovereign Gold Bonds can be purchased in multiples of 1 gram. The minimum amount of gold required is therefore 1 gram. For one year, the maximum amount of gold that an investor may purchase per person or Hindu Undivided Family is 4 kg. Trusts and universities can purchase up to 20 kg of gold.
Digital Gold, on the other hand, allows you to purchase as little as 1 rupee.

Taxable Gains or Losses from the Sale of SGBs & Digital Gold

SGB holders are tax-free on the amount they receive at maturity. If they are redeemed prior to maturity, capital gain tax will be charged. The interest on SGBs is also not tax-free. The tax on interest must be calculated according to the income tax rate of the individual.
Gold is a capital asset, so a Capital Gains Tax will be charged regardless of whether it is Physical Gold or Digital Gold. If the digital gold was held for less than three years, it would be considered Short-term capital gains. It will be taxed according to individual income tax slab rates. If the holding period exceeds 3 years, tax is levied at a rate of 20% with indexation benefits.

Compare SGB and Digital Gold

Basis	SGB	Digital Gold
Trading	On the stock exchanges, you can buy and/or sell Sovereign Gold Bonds.	Digital Gold is not traded on the stock exchange. You can purchase/sell Digital Gold at any time (24×7).
Holding period	The minimum holding period for Sovereign Gold Bonds is 5 years. They can also be sold before that time, but the liquidity on the stock market is a limitation.	Digital gold is a liquid asset that can be sold at any time for the current price.
Affordability	The minimum investment is one gram of gold. This is approximately Rs 6000.	Digital gold investment as low as Rs 1
Storage	SGB does not involve any physical gold.	If you purchase a certain amount digital gold, the equivalent amount is physically stored in a safe, which poses a risk to third parties.
Interest	SGBs pay 2.5% on the face amount of bonds.	Digital gold does not earn you any interest.
Costs incurred	There is no GST involved, but there are normal Demat fees if you buy on the secondary market.	Digital gold is subject to a 3% GST and the gold price is typically higher.

Final Word

The choice between SGBs or digital gold is a personal decision based on your investment goals and preferences. SGBs offer an affordable way to invest in precious metals, but have a long investment period. (Not much liquidity is available on the secondary market). Digital gold offers convenience, flexibility, and accessibility in the buying and selling of gold. However, it could come with additional fees (GST plus higher gold prices) and may not be backed by the government. You should carefully consider these factors to determine which option best suits your investment goals, risk tolerance and accessibility.

FAQs (Frequently Asked Questions):

What is the better gold sovereign bond or foreign currency?

SGB is a high-return investment that offers volatility and the ability to easily buy or sell it. SGB is the best option if you want to earn substantial returns and save tax. Fixed deposits offer low, but steady returns. They are not affected by market fluctuations.

What are the best platforms for buying digital gold?

Paytm and Tanishq are the most popular platforms to buy digital gold. However, you can also use Google Pay, PhonePe, Airtel Payments Bank, Google Pay, and Google Pay.