Sovereign Gold Bonds Secondary Market: Why Old SGBs Are Cheaper Than Fresh RBI Issues
Sovereign Gold Bonds Secondary Market: Why Old SGBs Are Cheaper Than Fresh RBI Issues
Sovereign Gold Bonds have become popular for Indians wanting gold exposure without storage hassles. The government stopped issuing fresh SGBs since February 2024. Your only option now is the secondary market where existing bonds trade on NSE and BSE. The surprising fact is that buying old SGBs from exchanges often costs less than waiting for new RBI issues. Let me explain how this works and why it benefits you.
When RBI launches fresh SGBs the price is fixed based on current gold rates. But in secondary markets these same bonds trade at prices determined by demand and supply. Most times you will find SGBs trading at discounts to prevailing gold prices. This creates immediate savings for smart investors who know where to look.
Key Takeaways
- Old SGBs frequently trade at discounts on stock exchanges making them cheaper than fresh issues
- You get 2.5% annual interest regardless of your secondary market purchase price
- Tax free capital gains benefit continues for secondary market purchases at maturity
- Flexibility to choose bonds with different remaining maturity periods
- Low trading volumes require using limit orders for best prices
- Buy anytime through demat account without waiting for RBI tranches
Why Secondary Market SGBs Cost Less
Several factors make secondary market SGBs cheaper. Many investors do not know they can buy SGBs from exchanges like regular shares. This limited demand keeps prices reasonable. SGBs are not actively traded. Daily volumes average only Rs 10-15 crore across all series. Sellers offer discounts to attract buyers.
Bonds closer to their 8 year maturity trade differently from newer ones. This creates opportunities. Government stopped fresh issues since February 2024. Some series now trade at premiums but many still offer good discounts.
How Much You Actually Save
Suppose gold trades at Rs 7000 per gram today. Fresh RBI issues would price SGBs around this rate. But on exchanges you might find bonds at Rs 6700-6800 per gram. That is Rs 200-300 saved per gram immediately. On 10 grams you save Rs 2000-3000 upfront. These savings compound when combined with the 2.5% interest you receive regardless of purchase price.
Real data shows premiums ranging from 1% to 5% over IBJA reference rates. But this is still cheaper than physical gold where you pay making charges GST and storage costs. The key is comparing different series and picking best value options.
Benefits Beyond Price
Secondary market gives flexibility that fresh issues cannot. You do not wait for RBI announcements. Different series have different maturity dates allowing customization with your goals.
The 2.5% annual interest stays unchanged. It calculates on original issue price not your purchase price. Buying at discount improves effective yield. Interest credits every six months automatically. Tax benefits stay intact. Capital gains at maturity remain tax free even for secondary purchases.
Things to Watch
Liquidity is the main concern. Some series barely trade. Check trading volumes before buying. Avoid very low activity series as selling later becomes difficult. Watch for excessive premiums. After RBI stopped issues some bonds trade above gold prices. Do not pay high premiums as 2.5% interest will not justify them.
Tax rules differ if selling before maturity. Maturity redemptions are tax free. But secondary market sales before maturity attract capital gains tax. Holdings over 12 months face 12.5% LTCG. Shorter periods get taxed per income slab. Plan holding period accordingly.
How to Buy from Exchange
Process is simple with demat and trading account. Open trading app and search SGBs. Compare prices with gold rates. Pick good value options. Always use limit orders not market orders. Specify exact price you want. This protects from unfavorable executions in low volumes.
Units credit to demat in two days after purchase. Interest starts from next scheduled date. Track everything through demat statements. Process is as easy as buying stocks but with better returns and tax benefits.
Making Your Decision
Should you buy old SGBs from exchanges? For long term gold exposure with guaranteed returns and tax benefits yes. Just pick series with reasonable prices and decent liquidity. Avoid excessive premiums.
For quick exit flexibility gold ETFs work better. But for holding until maturity SGBs provide superior returns. Combination of discounted entry 2.5% interest and tax free gains makes them attractive. Compare series on exchanges and use limit orders for best deals.
Tags: sovereign gold bonds, SGB secondary market, gold investment India, buy old SGBs, stock exchange gold bonds, tax free gold investment, RBI gold bonds
Related Posts :
Share This Post