Should you buy Sovereign Gold Bond (SGB)? If yes, should you buy the new tranche at 5561 or some older listed tranche & which one of the 62 tranches issued so far & why? A detailed 🧵 👇
Do ‘re-tweet’ & help us educate more investors (1/22)
Do ‘re-tweet’ & help us educate more investors (1/22)
First lets understand why SGB over all the other options,
(1) Physical Gold – Buying gold from your friendly jeweler
(1.1) Pro
(i) Tangible (You can touch it)
(ii) Buy in cash, confidentiality, difficult to trace
(iii) No maximum limit on buying
(iv) Highly Liquid (2/22)
(1) Physical Gold – Buying gold from your friendly jeweler
(1.1) Pro
(i) Tangible (You can touch it)
(ii) Buy in cash, confidentiality, difficult to trace
(iii) No maximum limit on buying
(iv) Highly Liquid (2/22)
(1.2) Cons
(i) Storage/Theft
(ii) Purity (Cheating)
(iii) Making Charges (upto 35%)
(iv) Taxation vs SGB is unfavorable
(v) GST – 3% on selling gold
(vi) Inconsistency of pricing across sellers & unfavourable rates vs traded gold
(vii) No regulator (3/22)
(i) Storage/Theft
(ii) Purity (Cheating)
(iii) Making Charges (upto 35%)
(iv) Taxation vs SGB is unfavorable
(v) GST – 3% on selling gold
(vi) Inconsistency of pricing across sellers & unfavourable rates vs traded gold
(vii) No regulator (3/22)
(1.3) Taxation
(i) STCG – Less than 3 years, added to your over-all income and taxed at slab rates
(ii) LTCG – More than 3 years, 20% tax with indexation advantage
(1.4) Suggestion – Avoid (4/22)
(i) STCG – Less than 3 years, added to your over-all income and taxed at slab rates
(ii) LTCG – More than 3 years, 20% tax with indexation advantage
(1.4) Suggestion – Avoid (4/22)
(2) Digital Gold – Buying from Fintech platforms – PayTM, Google Pay, Phone Pay, Safegold, MMTC, Augmont Gold
(2.1) Pro
(i) Buy as low as Re. 1
(ii) Purity – Generally wont be a problem
(iii) Storage – You don’t have to bother
(iv) Instant credit on selling (5/22)
(2.1) Pro
(i) Buy as low as Re. 1
(ii) Purity – Generally wont be a problem
(iii) Storage – You don’t have to bother
(iv) Instant credit on selling (5/22)
(2.2) Cons
(i) GST – 3% (You buy 1000 rupees of gold, you get 970 worth of gold)
(ii) Spread – High difference between buy and sell price (another 2-3% for storage, insurance & trustee fees)
(iii) Absence of regulator (6/22)
(i) GST – 3% (You buy 1000 rupees of gold, you get 970 worth of gold)
(ii) Spread – High difference between buy and sell price (another 2-3% for storage, insurance & trustee fees)
(iii) Absence of regulator (6/22)
(iv) Maximum holding period - MMTC investors will have 2 mandatorily take delivery or sell the gold purchased after 5 years or will have to pay extra charges, if the delivery is not taken
(v) Taxation vs SGB is unfavorable same like physical gold
(2.3) Suggestion – Avoid (7/22)
(v) Taxation vs SGB is unfavorable same like physical gold
(2.3) Suggestion – Avoid (7/22)
(3) Gold ETF – Buying through Mutual Funds
(3.1) Pro
(i) Buying at market value
(ii) Minimum – Rs. 50 & Maximum – No limit
(iii) Storage & Purity – You don’t have to bother
(iv) No GST
(vi) Physical delivery possible
(vii) Liquidity – T+1
(viii) Regulator - SEBI (8/22)
(3.1) Pro
(i) Buying at market value
(ii) Minimum – Rs. 50 & Maximum – No limit
(iii) Storage & Purity – You don’t have to bother
(iv) No GST
(vi) Physical delivery possible
(vii) Liquidity – T+1
(viii) Regulator - SEBI (8/22)
(3.2) Con
(i) Taxation vs SGB is unfavorable, same as physical gold
(ii) Tracking error - actual returns may be slightly lower than the index
(iii) Expense ratio - actual returns may be slightly lower than the index
(d) Suggestion – Better than Physical & Digital gold (9/22)
(i) Taxation vs SGB is unfavorable, same as physical gold
(ii) Tracking error - actual returns may be slightly lower than the index
(iii) Expense ratio - actual returns may be slightly lower than the index
(d) Suggestion – Better than Physical & Digital gold (9/22)
(4) Sovereign Gold Bond (SGB) – Buying through RBI on behalf of the central government
(4.1) Pro
(i) Issued at a discount - Current tranche is at 5561 vs the current market price of 5611
(ii) Storage – You don’t have to bother
(iii) No GST (10/22)
(4.1) Pro
(i) Issued at a discount - Current tranche is at 5561 vs the current market price of 5611
(ii) Storage – You don’t have to bother
(iii) No GST (10/22)
(iv) 2.5% interest paid by the government every year
(v) Taxation – No capital gains tax if you buy during the launch or from the secondary market & hold it till maturity. But the 2.5% interest is taxed at the slab rates.
(vi) Sovereign guarantee (11/22)
(v) Taxation – No capital gains tax if you buy during the launch or from the secondary market & hold it till maturity. But the 2.5% interest is taxed at the slab rates.
(vi) Sovereign guarantee (11/22)
(4.2) Con
(i) Not backed by physical gold purchase unlike in digital gold & ETF where gold is actually bought. But there is sovereign guarantee.
(ii) Minimum – 1 gram, Max – 4 Kgs
(iii) No physical delivery (12/22)
(i) Not backed by physical gold purchase unlike in digital gold & ETF where gold is actually bought. But there is sovereign guarantee.
(ii) Minimum – 1 gram, Max – 4 Kgs
(iii) No physical delivery (12/22)
(iv) Liquidity – Its an 8 year product. If you want to sell before 5 years, your selling price is the secondary market determined price which is typically at a discount because of lower liquidity & current yield (will explain ahead)
Suggestion - Best product to invest in (13/22)
Suggestion - Best product to invest in (13/22)
(5) But should we apply for the new issue or buy the old tranches listed on the exchange?
So far 62 SGB issues have come excusing the new one. We have looked at all the 62 issues & all of them are trading at a 1 - 5% discount to the 5561 price at which the new issue it launched
So far 62 SGB issues have come excusing the new one. We have looked at all the 62 issues & all of them are trading at a 1 - 5% discount to the 5561 price at which the new issue it launched
While selecting which one should you invest in out of the 62 old & the new 63rd one, you have to look at either,
(a) Discount available to the new issue +
(b) Current Yield of the old issue
or just look at the
(c) Yield to maturity (YTM) (15/22)
(a) Discount available to the new issue +
(b) Current Yield of the old issue
or just look at the
(c) Yield to maturity (YTM) (15/22)
(a) It’s a no brainer that the bonds available at the highest discount is the one you should choose but there are such ~40 bonds trading ~ 5% discount & hence you look at the current yield or YTM to make the final decision. (16/22)
(b) If you look at the 2020-21, Series VI, September 8, 2020 Bond,
Issue Price - 5117
Interest Payable = 5117 * 2.5% = 128 (Irrespective of the price at which you buy, 2.5% is payable on the issue price)
Current Market Price = 5284
(17/22)
Issue Price - 5117
Interest Payable = 5117 * 2.5% = 128 (Irrespective of the price at which you buy, 2.5% is payable on the issue price)
Current Market Price = 5284
(17/22)
Current Yield = Interest payable / Current Price,
= 128/5284 = ~2.5%
So if I buy this bond from the market at 5284, I will still receive the interest of 128 which is ~2.5% which even the new issue pays (18/22)
= 128/5284 = ~2.5%
So if I buy this bond from the market at 5284, I will still receive the interest of 128 which is ~2.5% which even the new issue pays (18/22)
So not only that I get it at a discount of ~5% in the secondary market but also make the yield of ~2.5%
vs
(a) Buying the new tranche at 5561 (premium of 5%) + 2.5% yield
or
(b) buying something at a 5.33% discount but making a 2.28% yield for the remaining 7-8 years (19/22)
vs
(a) Buying the new tranche at 5561 (premium of 5%) + 2.5% yield
or
(b) buying something at a 5.33% discount but making a 2.28% yield for the remaining 7-8 years (19/22)
All the ones marked in green look interesting at this point in time & are better placed than investing in the new tranche that is currently open (20/22)
(c) I dint bother to use the YTM method because I came across some websites while writing this thread which do it. Go to these websites & search for SGB with the highest YTM.
sgbanalyzer.com
sgb.wintwealth.com
fincues.com (21/22)
sgbanalyzer.com
sgb.wintwealth.com
fincues.com (21/22)
fincues.com/goldbonds
Find the Sovereign Gold Bond which provides most value | Sovereign Gold Bonds - Fincues
Find the Sovereign Gold Bond which provides most value.
sgb.wintwealth.com
Buy Sovereign Gold Bond (SGB) - The smartest way to invest in Gold
Find and invest in top 10 Sovereign Gold Bonds on Wint Wealth, ranked by yield to maturity (YTM). Se...
sgbanalyzer.com/home
SGB Analyzer - Analyze Sovereign Gold Bonds (SGBs) & Identify cheaper SGBs on Discounts over Current Gold Price
SGB Analyzer - Analyze Sovereign Gold Bonds (SGBs) & Identify cheaper SGBs on Discounts over Current...
So if the YTM of an SGB is 3%, it means that the SGB will make you 3% vs the 2.5% interest that the new tranche offer you because of the discount at which it is available. Capital gains if any is over & above this 3%. So you select the SGB with the highest YTM & invest (22/22)
This is my 60th thread, 'do re-tweet’ & follow me at
@KirtanShahCFP
Have earlier written on,
- Various Sectors
- Macro Economics
- Debt Markets
- Equity
- Gold
- Personal Finance etc.
You can find them all in the link below (END)
@KirtanShahCFP
Have earlier written on,
- Various Sectors
- Macro Economics
- Debt Markets
- Equity
- Gold
- Personal Finance etc.
You can find them all in the link below (END)
Loading suggestions...