Should you invest in new Sovereign Gold Bond issue or buy it on the exchange?

I am planning to invest in Sovereign Gold Bonds. Please suggest whether I should buy them in a new issue or should I explore buying the same from the secondary market. Please also share the pros and cons of buying the SGB from a new issue or from the secondary market.

— Dharamveer

If you are planning to invest in Sovereign Gold Bonds, you have two options to choose from. Either you could apply for a fresh issue, or you could also buy them from the secondary market on a trading platform. What are the differences between these two options?

Let us understand them.

First of all; if you are keen to buy from an original issue, then they may not always be available. Sovereign Gold Bonds are issued in tranches and an issue is typically open for one week in a month. So, you need to find out when the next tranche is coming and then be ready to invest in them. However, if you are in a hurry and you are ready to buy from the secondary bond market on a trading platform you can do it any day. However, please remember that you will have to be satisfied with whatever quantities are being offered. They may not be the quantities you are looking for. Also, the maturity dates may be very different for the lots which are available for sale in the secondary market. Remember that you may get a very good deal in pricing if you invest in the secondary market because there may be some distress sell by some of the old/existing SGB holders. Also, if you are planning to hold your investment till maturity then it is fine. Otherwise, if you want any time liquidity, you need to be prepared that whenever you decide to sell your SGB holding in the secondary market, you may have to be ready to get discounted price and sometimes, may have to wait for a few days before a buyer turns up. However, for both the options you need a demat account. Besides, you must know that tax benefits on Sovereign Gold Bonds accrue only when you hold your bonds till maturity.

If you sell your holding before maturity, then the taxation will apply depending upon the period of your holding. If you have held your bonds for less than three years, be prepared to pay tax at applicable rates on the gains made by you. However, if you have sold your bonds after holding them for at least three years, then you shall be taxed at a lower rate of 20% of the gain, and that too after applying the indexation benefit. But if you wait till maturity, then obviously, whatever gain you have made is completely exempt from tax. If you keep all above factors in mind, you may proceed to buy Sovereign Gold Bonds in the secondary market. However, quantity and pricing will not be under your control, and you will have to accept whatever the market is offering.

(Query answered by Rajiv Bajaj, Chairman & MD, Bajaj Capital Ltd.)

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