Can SGBs beat gold funds going forward?

 Can SGBs beat gold funds going forward?

2015 Series Sovereign Gold Bonds:I've given its early investors a 13 percent XIRR. When measured against actual gold and gold ETFs, there has been a decrease.

The Sovereign Gold Bonds-2015-Series-I final redemption price is fixed at Rs 6,132 per unit SGB.

The Sovereign Gold Bond (SGB), which has its maiden issuance approaching maturity on November 30, has managed to beat other precious metal-based investment options.

R 6,132 per unit SGB is the price for the Sovereign Gold Bonds-2015-Series-I final redemption. This amount is determined by using the simple average of the gold closing price for the week of November 20–24, 2023. 2015 saw the release of the first tranche, which cost Rs 2,684 per gram.

yields a matrix

Since its inception on November 30, 2015, SGB-2015-Series-I has provided an extended internal rate of return (XIRR) of 12.9%, according to data gathered by Moneycontrol.

The issue price less the redemption price equals 10.88 percent for the basic rate of return.

But these bonds also came with a fixed interest rate, which was set at the time of issuance, of 2.75 percent annually. The fixed coupon on Sovereign Gold Bonds was changed to 2.5 percent in later issues.

SGB-2015-Series-I offers an XIRR of 12.9% based on a 2.75 percent coupon rate.

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However, from November 30, 2015, and November 24, 2023, the category average yielded by gold exchange-traded funds (ETFs) is 10.7%.

During this era, the returns on gold prices in US dollars are 8.3% less than those of the SGB.

Interestingly, the Nifty 50 Total Return index yields returns that are little higher at 13.5%.

SGB vs gold fund

The consensus among financial experts is that the best method to invest in gold is via Sovereign Gold Bonds, provided the investor is prepared to retain the investment until it matures, which is eight years away.

Holding SGB returns until maturity results in tax-free returns. Thus, this is a significant benefit over other kinds of gold, such as gold funds or gold exchange-traded funds (ETFs). Additionally, SGB offers fixed yields of around 2.50% annually. This is the only product in the financial gold category that piques your curiosity more than a price adjustment. Third, SBG lacks an expense ratio, but both gold funds and exchange-traded funds (ETFs) have," said Amol Joshi, the founder of PlanRupee Investment Services.

MyWealthGrowth.com co-founder Harshad Chetanwala emphasized that SGBs are a secure investment since the government backs them. SGBs may be sold on the exchange and are also liquid in nature. However, bear in mind that the tax advantage is only accessible to those who purchase at the tranche opening and retain it until maturity, according to Chetanwala.

Financial gurus recommend holding 5–15 percent of your portfolio in gold, depending on your investment horizon and risk tolerance.

The founder of Full Circle Financial Planners & Advisors and SEBI-registered financial adviser Kalpesh N Ashar said that SGB is still the greatest long-term option in gold.

However, I want to emphasize the phrase "long-term" here. Perhaps investors shouldn't put all of their money into SGBs if the liquidity issue is up for debate, even if they provide higher yields than other gold-based investments. Undoubtedly, gold-based funds are the finest options in terms of liquidity," Ashar said.

Furthermore bear in mind that while long-term returns from gold-based investing strategies have been strong, gold itself sometimes performs poorly.

When deciding between sovereign gold bonds and gold ETFs, investors should take into account their investing objectives, risk tolerance, and personal preferences. Exposure to the price of gold is offered by both choices; nevertheless, the decision is based on other criteria, including the requirement for liquidity, tax implications, and interest income.