Sovereign Gold Bond Returns

The returns generated by Sovereign Gold Bonds are a combination of the fixed interest income earned semi-annually and capital gains/loss generated during the tenure. The interest of Sovereign Gold Bond is calculated at 2.5% p.a. on the initial investment amount and paid semi-annually to the investors. Additionally, investors would also benefit from the capital appreciation in addition to earning interest income.

Investors can use various online Sovereign Gold Bond return calculators to estimate the returns on their investments. Such online calculators are easy for anyone to use and provide accurate results without the risk of human error. Investors holding their SGBs in the demat form can use their stock broking platforms to check returns on their SGBs.

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The returns on Sovereign Gold Bonds are not fixed and are affected by a combination of factors. Here are some of the factors that impact the returns of SGB:

The primary objective of maintaining exposure to gold in one’s portfolio is to provide a hedge against its equity exposure. Gold and equities usually have a negative correlation. Gold as an asset class usually generates higher returns during bearish equity markets, economic shocks, high inflationary conditions and geopolitical tensions. Thus, investors should avoid using exposure to gold for wealth creation or to generate higher returns. However, investors can still try to optimise their returns from SGB by following the undermentioned tips:

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There is a widespread belief that interest rates and gold prices share an inverse relationship, which means that the gold prices fall when interest rates rise. However, there is historical evidence showing that this relationship is not always consistent. For example, during the 1970s, gold prices appreciated significantly even as interest rates were high and rising.

Apart from interest rates, several other factors influence the gold prices, including demand and supply of gold, inflation trends, government policies, geopolitical conditions, currency movements and global economic conditions. These factors, in turn, play a crucial role in determining gold prices and consequently, impacting SGB returns.

The interest income earned on Sovereign Gold Bonds is taxable as per the investor’s income tax slab rate. However, one of the major advantages of SGB that sets them apart from other gold investment alternatives is that the capital gains realised on redeeming SGB at maturity is exempt from tax for individual investors. If sold before maturity, capital gains tax applies based on the holding period. SGBs held for a period of less than a year will be considered as short-term capital gains and taxed as per the investor’s tax slab rate. SGBs held for more than a year will be considered as long-term capital gains, which would be taxed at 12.5%.