Last Updated on August 22, 2022 at 11:15 pm
With the Sovereign Gold Bonds, 2021-22 (Series IV) open for purchase from July 12-16, 2021, a reader asks, “how much return can I get from these bonds”? The only honest answer one can offer is, we do not know. Gold is too risky an asset class to make a prediction.
Here is why we have no idea what return Sovereign Gold Bonds would offer in addition to the guaranteed 2.5% incentive to buy these instead of physical gold. The situation is the same for mutual funds: Do not expect returns from mutual fund SIPs! Do this instead!
These are more than 9000 eight-year return data points of Gold INR and Gold USD from 31-12-1986 to 9-7-2021. Eight years is the tenure of these bonds. The returns have swung from about -7% to 23%. Anyone who offers a definitive return number from a gold investment is either speaking through his hat or is trying to sell you something.
If you want to invest in Sovereign Gold Bonds for returns, you essentially count on luck. I think our money deserves better respect than that. You can wait for any amount of time, but this uncertainty will never go away.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
Who should buy Sovereign Gold Bonds? Who should not?
Does this mean all investors should avoid Sovereign Gold Bonds? No. They should first define their need.
- For immediate use: the answer is obvious. Buy physical gold or jewellery.
- For future use (e.g. accumulating gold for a marriage).
- If the need is more than 10Y away, a normal mix of equity and fixed income should suffice.
- If the need is 8-10Y away, you can buy Sovereign Gold Bonds.
Why? Sovereign gold bonds offer a tax-free, risk-free way to accumulate gold as long as your future gold purchase is more than eight years away*. You also get 2.5% interest (taxable as per slab) on the initial gold value as a “thank you for reducing gold imports(temporarily)” gift from the govt.
This is risk-free because the bond tracks the price of 24-carat gold, and at any given time and after eight years, one could buy 22-carat jewellery. * These bonds cannot be sold in the middle of the tenure unless you are willing to take a loss. So if you want to buy jewels after 10 years, buy the bonds for the first eight years and then hold cash or buy the gold asap.
- If you wish to include gold for diversification, then the gold instrument has to be liquid. You will need to buy and sell freely without loss. Sovereign Gold Bonds are not suitable for this. Those familiar with ETFs can choose a liquid ETF like Nippon India ETF Gold BeES or use a Gold fund (a fund of fund that invests in a gold ETF).
- One could argue that gold is not necessary for a long-term portfolio and effective management is possible with stocks and bonds. Also, see: How much gold in my portfolio will protect against a market crash?
- Sovereign Gold Bonds are also unsuitable for tactical exit and entry in gold. This will again need ETF and gold and a strategy. See for example: Is this a good time to buy gold? A tactical buying strategy for gold
Therefore we recommend that investors eyeing Sovereign Gold Bonds first define their requirements clearly. If they want to “get some returns” from gold or use it as part of a diversified portfolio, then these bonds are not suitable. We recommend using them only if you have a future need (about 8-10Y away) to buy gold jewellery.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)