SGB (Sovereign Gold Bond) Calculator

Introduction

• Brief explanation of Sovereign Gold Bonds (SGBs)

• Issued by: Reserve Bank of India (RBI) on behalf of the Government of India. The SGBs are issued on the basis of underlying physical gold held by the government.

• Purpose: the sovereign gold bonds are an alternative to buying physical gold for the investors. Investment in SGBs offer numerous benefits which are discussed in detail further in the article.

Take a Pre Approved Gold Loan

Gold Loan starting @ undefined% per month*

+91

Apply Now

You will receive a call from our Relationship Manager

• Benefits of SGBs

• Interest income : One of the biggest advantages of sovereign gold bonds (SGBs) is the fact that these financial instruments provide regular income in the form of interest earned on the bonds. This magnifies the scale of returns as it is coupled with the price appreciation of the underlying gold.

• No storage issues : Another SGB investment benefits is that as compared to physical gold, the investor doesn’t have to worry about the storage of the gold. This makes it more convenient and cost effective to enjoy the financial security of gold while not worrying about the storage issues.

• Capital gains tax exemption (if held till maturity) : Another fantastic feature of SGBs is that the investor enjoys the exemption from capital gains tax if they hold the instrument till maturity. Other financial instruments attract Short term capital gains (STCG) or long term capital gains (LTCG) depending upon the investment timeframe, however holding SGBs till maturity saves this cost and boosts overall return on investment.

Purpose of the Calculator

• Help investors estimate:

• Total returns from an SGB investment : The main purpose of any financial calculator is to determine the numeric value of the returns. The same holds true for Sovereign Gold Bond (SGB) calculators too, these calculator’s main purpose is to help calculate the total returns based on the numeric variables as input by the user.

• Interest earnings over the holding period : Sovereign Gold Bonds (SGB) offer price appreciation as per gold’s price movement along with fixed returns to the investor. Making the interest earnings based on the holding period and the applicable interest rates is something that the SGB calculator can help with. Aiding in SGB interest rate calculation is one of the major functions of such calculators.

• Maturity value based on gold price assumptions : Sovereign Gold Bonds come with a maturity date. This is when the financial instrument ceases to exist and the maturity value is paid to the investor. SGB value calculators can help determine the value of the SGB upon maturity.

• Useful for:

• Planning investments : One of the most critical uses of Sovereign Gold Bonds (SGB) calculator is to aid in the investment planning of the investor. These calculators can help take into account various variables and determine the viability of the investment, which can help with creating an investment planning which most aligns with the investor’s investment goals.

• Comparing with other gold investment options : Another use of the SGB calculator is to do a comparison between scenarios where the investment was made in the SGBs vs the other gold investment options. The calculator can help paint a clear picture on what the initial investment would look like between SGBs and other gold investment products over the investment horizon. While this is highly dependent upon estimates and expected returns, however this is a fairly reliable way to do a comparison between SGB maturity value vs other investment types in the same underlying asset.

Take a Pre Approved Gold Loan

Gold Loan starting @ undefined% per month*

+91

Apply Now

You will receive a call from our Relationship Manager

Inputs Required

• Investment amount (INR) : Investment amount is one of the most important parameters required for a SGB calculator to be able to give results, as the output is highly dependent upon the investment amount citing the fact that the principal determines the returns made in the terms of amount.

• Issue price per gram of gold : This is the price of gold at which the bonds were issued. It captures the current gold price per gram and the basis that the bonds are issued, as it is a deciding factor of the price of the bond at the time of issue/purchase.

• Investment date / tenure (8 years default; premature redemption at 5, 6, 7 years optional) : The investment date or tenure helps determine the timeframe during which the investor remained invested in the sovereign gold bond scheme. It helps determine the return generated during the total period of investment.

• Expected annual gold price appreciation (in %) : this is a fair estimation at which the gold price in the market is expected to rise. This input helps in determining the total returns that are expected to be generated over the investment timeframe, apart from the annual interest rates that will be paid out by the issuing authorities in the form of fixed returns. It is important to note that there is no guarantee that the gold price will rise as expected. However, it helps in estimating expected returns based on past performance of gold.

• Annual interest rate (currently 2.5%) : Annual interest rate is disclosed at the time of issue, this is the interest return that the gold bonds will be paying out to the investors, this is over and above the returns made in the form of price appreciation.

• Redemption year (if premature exit is chosen) : Redemption year is when the bonds will be liquidated and the investor will be paid back the money. This is a crucial input which is required in determining the total timeframe of investment, and essentially helps in determining total returns that can be generated by the gold bond investment.

Outputs Displayed

• Number of grams purchased : Based on the gold rate during the time of investment and the total investment made in the gold bond scheme, the calculator is able to calculate the total grams of gold purchased by the virtue of investment in the SGB scheme.

• Total interest earned (simple interest) : The interest component is disclosed at the time of issue of SGBs. Based on the applicable interest rates, and the timeframe of investment, the SGB interest calculator would be able to give an output on the total returns made by interest income alone.

• Estimated value at maturity (based on gold price growth) : This output is based on input parameters such as the timeframe of investment, and the expected price appreciation of gold.

• Total returns (absolute and annualized) : The total returns take into account the returns generated in the form of interest income as well as the price appreciation of gold. The total returns will be calculated as an absolute figure i.e. total amount that is expected to be made over the investment horizon, and the annualized returns in the form of percentage of returns on the total investment.

Take a Pre Approved Gold Loan

Gold Loan starting @ undefined% per month*

+91

Apply Now

You will receive a call from our Relationship Manager

How To Read The Outputs

• Value over time, interest vs capital gain : The best way to read the output and make sense of the results to calculate SGB returns is to take into account the value over time. I.e. the core value of the investments in the SGBs with separate components of both interest income and the capital growth.

• Scenario comparison: Another way to read the output is to compare scenarios by taking into account different growth rates in the gold price. This can help analyze what the investment will look like in each scenario, and can help make an informed decision with regards to investing in SGBs.

FAQs Section

• What is the tax treatment of SGBs?

A - SGBs provide both interest income as well as the capital appreciation benefit. Since these instruments offer returns in both the forms, these also attract different taxes. The interest income from the SGB instrument is taxed as per the investor’s tax bracket, the returns made in the form of capital appreciation are tax exempt in an event where the instrument is held till maturity; in case the investor decides to sell the SGBs in the secondary market before the maturity, then the applicable capital gains tax will be applicable.

• Can I redeem SGBs early?

A - Yes, the investor can choose to divest in the sovereign gold bonds (SGBs) before maturity. One can see these instruments in the secondary market, however by doing so the investor will attract the capital gains tax which may diminish the overall sovereign gold bond returns.

• Is interest compounded?

A - No, the interest income from the SGBs are not compounded. The interest is paid to the investor at a fixed interval as laid out in the contract.

Take a Pre Approved Gold Loan

Gold Loan starting @ undefined% per month*

+91

Apply Now

You will receive a call from our Relationship Manager