Sovereign gold bond investors are weighing whether to hold their investments until maturity or sell them early. Holding until maturity offers a 2.5% annual return and tax-free gains after eight years. However, selling early on stock exchanges provides liquidity, though these profits are taxable. Investors should consider their financial goals.
There have been a lot of highs and lows with gold prices, and many sovereign-gold-bond investors have just one question in mind: is it better to hold the bond till maturity or sell and earn profits now?
The answer to this question is not as easy as checking the present price of gold. It depends on when the bond was purchased, how much profit you have earned from it, and whether you need the money.
Why Holding Until Maturity Can Make Sense?
One major benefit of investing in an SGB is that you receive a 2.5% annual return on your invested amount, which is paid twice a year. More importantly, if one invests in the SGB and keeps the bond till maturity after 8 years, any gains from redemption are exempt from tax.
This is a good thing for investors who have invested in gold at low prices in the long term. They will keep getting interest while still being subjected to gold prices.
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When Selling Early May Be A Better Option?
However, holding until maturity does not always appear to be the best option. If your SGBs have already been giving good returns and there are even better investment options, it will be good to sell out earlier.
SGBs can be sold before maturity on stock exchanges. Just note that the market value can be higher or lower than the actual value of the bond linked to gold. Trading volume can also pose difficulties for sales at the desired price.
Selling SGBs before maturity on the stock exchange is taxable as a capital gain, unlike redemption at maturity by individuals.
What Should Investors Do?
There is no one-size-fits-all answer. If you do not need the money and are comfortable with gold's long-term outlook, holding until maturity may be rewarding. But if your financial goals have changed or you need liquidity, selling early deserves consideration.
Ultimately, don't sell just because gold prices are rising. Make the decision based on your returns, tax implications, and financial goals.