Among the various investment options for senior citizens, who especially look forward to a lower-risk component, sovereign gold bonds (SGBs) have emerged as another suitable tool. Going by the numbers in the last eight years, SGBs have highlighted their capacity to offer consistent income and capital appreciation.
Average annual return: In the last eight years, SGBs have yielded an average annual return of about 13.7%. This includes the assured 2.5% interest income and capital appreciation linked to movements in gold prices.
Capital appreciation: The value of gold has witnessed an uptick in the past few years, thus considerably contributing to the capital appreciation of SGBs. For instance, the initial issuance of SGBs in 2015 experienced a significant absolute price increase of about 128.5% by November 2023.
Alternative investment tools versus SGBs: Although not a direct match to a few equity investments, SGBs have surpassed the performance of bank fixed deposits (FDs) and showcased relatively steady returns while facing market fluctuations.
A senior citizen can look forward to investing in SGBs after considering their unique circumstances and risk appetite.
Also, it is important to note that past performance is no guarantee for future outcomes. The ups and downs experienced in gold prices and market conditions lead to the possible scenarios of fluctuations.
Moreover, one needs to consider that while capital gains enjoy tax-free status at maturity, the interest income is subject to taxation depending on the individual’s income slab.
The safety of the principal amount is a crucial aspect to take into consideration. In this regard, any assured scheme offering a fixed return surpassing the guaranteed 2.5% interest of SGBs is likely to provide a greater level of protection for the principal in the short to medium term.
So, before looking forward to investing in SGBs, senior citizens should also consider a few factors, which include:
Reduced assured returns: The 2.5% interest offered in the case of SGBs is likely to be less appealing as against a few guaranteed schemes offering higher fixed returns.
Extended lock-in period: While SGBs offer the option of premature withdrawal, which can be done after the fifth year from the date of issue of interest payment dates, the eight-year tenure imposes a considerable restriction on accessing invested capital for a significantly long duration.
Gold price movements and vulnerability: Short-term dips in gold prices could lead to temporary paper losses.
Senior citizens can look forward to investing in SBGs in case they have a more extended investment horizon with an appetite to face fluctuations in gold prices.
Moreover, diversification of the investment portfolio through including both guaranteed schemes and SGBs could be an effective strategy for wealth creation aligning with risk appetite and investment objectives.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.