Sovereign Gold Bond Vs FD

What is a Sovereign Gold Bond (SGB)?

A Reserve Bank of India (RBI) Sovereign Gold Bond (SGB) is a financial instrument issued by the RBI. They are mandatory certificates issued on behalf of the Indian government against gold. They let people invest in gold without having to hold a physical asset. SGB is a safer investment option than real gold. Because gold prices are less sensitive to market swings, they pose a lower risk. With the expanding popularity and demand for gold, SGB prices tend to rise dramatically over time. Because of these qualities, they are a very promising investment option.

SGBs are government-issued securities that are thought to be safe. Their worth is measured in multiples of gold grams. SGBs have seen a large growth in investors, as they are seen as a reasonable alternative to actual gold.

SGB is available in 1 gram, 10 gram, and 100 gram quantities. These bonds, like any other dematerialized financial product, can be traded on the secondary market. The Bonds have an 8-year maturity duration and an exit option starting in the fifth year.

Sovereign Gold Bonds are more flexible and better than actual gold in terms of investment. Investors who purchase higher-denomination bonds can keep them in the bank and receive interest on them. Buying lesser denominations and holding them in the bank, on the other hand, will result in storage fees. As a result, your entire investment cost will rise.

What is a Fixed Deposit?

Fixed deposits are a form of financial instrument that banks and non-banking financial institutions offer. An investor makes a one-time investment at a fixed interest rate for a certain period of time. Because it ensures a larger return on the investor’s investment, it is one of the safest investment options available. Non-banking financial companies and banks offer several forms of fixed deposits, based on the demands of investors for short- and long-term goals. Fixed deposits offer a variety of benefits. The nicest thing about fixed deposits is that you can expect a predictable return on your investment. Investing in a fixed deposit incurs fees. 

Because investors can choose the time period and amount that best meets their needs, fixed deposits provide flexibility. Based on your fixed deposit investment, you may be eligible for a loan. An investor can close the FD and withdraw the cash via overdraft in the event of an emergency. You will be eligible for a range of tax benefits if you invest in tax-saving fixed deposits for five years. Fixed deposits are a secure way to put money aside. Depending on their short-term or long-term goals, investors can pick from a number of Fixed Deposit Schemes. Fixed deposits also give investors a guaranteed return on their investment.

Features of Sovereign Gold Bonds

• Eligibility Criteria: A Sovereign Gold Bond Scheme is available to all Indian residents. SGBs can be purchased by HUFs, trusts, universities, and charitable organizations. Guardians can also invest on behalf of minors.

• Investment: Gold bonds are valued in multiples of gold grams. One gram equals one unit. The smallest investment is one gram of gold, with a maximum investment of four kilograms per investor and Hindu Undivided Family. The maximum amount of gold that can be held by an entity is 20 kg.

• Tenure and Premature withdrawals: SGBs have an eight-year term. A five-year lock-in period is required for India’s sovereign gold bonds. After the fifth year, the investor can redeem the bond. Withdrawals are only permitted on interest payment dates.

• Interest Rate: In the current financial year, the interest rate on gold bonds is 2.5 percent. On the nominal value of the investment, interest is paid twice a year. The returns are based on the current gold market price.

• Taxation: According to the Income Tax Act of 1961, the interest on these bonds is taxable. There is no capital gains tax on this when it is redeemed. Long-term capital gains also provide indexation benefits.

• Eligibility for Statutory Liquidity Ratio (SLR): If banks bought bonds after hypothecating, securing a lien, or pledging them, the Statutory Liquidity Ratio was taken into consideration (SLR). SLR is the amount of capital held by a commercial bank before it extends credit to consumers.

• Authorized Agencies: The Indian government sells bonds in a variety of ways. Stock Holding Corporation of India (SHCIL), banks, selected post offices, and authorized stock exchanges, either directly or through their agents, are some of the avenues available. SGBs can be traded through intermediaries or stock exchanges like the National Stock Exchange or the Bombay Stock Exchange.

Features of Fixed Deposit

• Fixed Returns: Unlike stock market investments, FD interest rates do not change with market movements. Even if the stock market is performing poorly, fixed deposit holders may rest assured that their money is safe. As a result, investors may rest assured that their fixed deposit investment is safe. At the end of the term, they will get the principal amount as well as the FD interest rate payout.

• Loan Against Fixed Deposit: Fixed deposits can also be used to get bank loans. In other words, if a person has a fixed deposit, he or she can take out a loan against it. Typically, lending institutions will lend up to 90% of the amount of the fixed deposit. The percentage may, however, differ from one bank to another. Even if the loan is secured by the FD, the individual continues to earn interest on the FD. It’s vital to remember that the loan term cannot exceed the term of the fixed deposit.

• Tax Benefit: Investing in tax-saving FD schemes qualifies investors for tax benefits under Section 80C of the Income Tax Act of 1961. In a financial year, the maximum deduction that can be claimed under this clause is INR 1.5 lakhs.  However, such fixed deposits come with a lock-in period of 5 years.

Which one to choose?

SGB and FD investments are both low-risk, but they operate differently. Fixed deposits offer a lower rate of return than gold bonds, but the benefit is that your money will be safe from market swings. Sovereign gold bonds provide better returns, but they are also susceptible to market volatility. You must decide what to invest in based on the level of risk you are willing to accept. It’s a good idea to make sure your investment fulfills your financial objectives.