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SGB Gold Bond vs Top Gold ETF: Which has given higher return on Rs 5 lakh investment in 5 years? See returns and calculations
- Written by Shaghil Bilali
Published: Zee Business| Updated: Zee Business
SGB Gold Bond vs Gold ETF: Sovereign Gold Bond's SGB 2020-21 Series-IV-Issue date July 14, 2020 will now be available for early withdrawal (early redemption). The RBI announced it on the 5-year completion of the scheme. SGB investors can redeem their investments at Rs 9,688 per unit of SGB. It is Rs 4,836 higher, or over 99 per cent, than its launch price of Rs 4,852 in July 2020. Sovereign gold bonds (SGBs) invest in gold of very high purity, which is also the case for gold exchange-traded funds (ETF). After 5 years of completion, SGBs can list themselves on the share market. Gold exchange-traded funds (ETFs) also track the price of very high purity physical gold and can also be traded in a share market. Then how are SGB and gold ETFs different? In terms of return from SGB 2020-21 Series-IV and the top gold ETF, which of the two has given a higher return on a Rs 5 lakh investment in the 5-year time frame? See our calculations to know.
Photos: Unsplash/Pexels/Pixabay
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What is SGB scheme?
1/8To decrease reliance on gold imports, the central government announced the SGB scheme in Budget 2015. As per the scheme, the RBI would issue SGBs. An SGB is denominated in grammes of gold and is linked to 999 pure gold. Though all bonds have an 8-year withdrawal period, they provide the early withdrawal (premature redemption) option to their investors on completion of 5 years of the scheme.
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What is SGB scheme?
2/8SGB 2020-21 Series-IV-Issue date July 14, 2020, is the latest scheme, which is open to early withdrawal from today. A 5-year period is also a period when an SGB scheme can also be listed in share markets, where investors with no SGB exposure can also trade them like any other stock. Investors need a demat account to trade an SGB share. What makes SGBs different from ETFs is that unlike ETFs, SGBs also provide a 2.5 per cent annual interest in two instalments every year till maturity. The government discontinued the SGB scheme in 2024.
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What are gold ETFs?
3/8The ETF is the only mutual category that can be traded in a share market like any other stock. Gold ETFs track the price of physical gold of very high purity. They come with a low expense ratio, and the investor can buy and sell them during market hours with a demat account. The NAV price of a gold ETF fluctuates during a market session.
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Calculations for story
4/8We are calculating the 5-year return on a Rs 5 lakh investment in SGB 2020-21 Series-IV and the top gold ETF.
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5-year return from SGB 2020-21 Series-IV
5/8When the series was launched, the unit per gramme was Rs 4,852. It stands at Rs 9,688 now, which means Rs 4,836 per unit profit or a 99.67 per cent return.
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5-year return on top gold ETF
6/8LIC MF Gold ETF has been the top gold ETF (with the highest CAGR) in the 5-year period. The ETF has given a 16.09 per cent annualised return in that duration.
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Value of Rs 5 lakh investment in SGB 2020-21 Series-IV in 5 years
7/8The return on a Rs 5 lakh investment in 5 years is estimated to be Rs 4,98,350. So the present value of a Rs 5 lakh investment in today's terms is Rs 9,98,350.
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Value of Rs 5 lakh investment in LIC MF Gold ETF in 5 years
8/8On an Rs 5 lakh investment, the estimated return in 5 years in the top gold ETF is Rs 5,54,251.09. The present value of the investment is Rs 10,54,251.09.
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