Published By:-
Anand (B.Tech, M.Tech, MBA Finance)
Mob :- 9415283904
Disadvantages of Sovereign Gold Bond
1. While the Sovereign Gold Bond Scheme has many advantages, there are also some potential disadvantages that investors should consider before investing in these bonds. Here are some of the disadvantages of investing in Sovereign Gold Bonds:
2. Limited liquidity:- Sovereign Gold Bonds are traded on stock exchanges, but the liquidity in the market can be limited, especially for smaller investors. This can make it difficult to sell the bonds if the investor needs cash urgently.
3. Long-term investment:- Sovereign Gold Bonds have a tenure of eight years, with an exit option available after the fifth year. This makes it a long-term investment, and investors who may need the money in the short term may not find this investment suitable.
4. Fixed interest rate:- While Sovereign Gold Bonds offer an interest rate of 2.5% per annum, this rate is fixed for the entire tenure of the bond. This means that the investor will not benefit from any increase in the price of gold or changes in interest rates.
5. Taxation:- While the interest earned on Sovereign Gold Bonds is taxable, the capital gains made on the bonds are tax-free only if the investor holds the bond till maturity. If the bond is sold before maturity, then the capital gains tax will be applicable.
6. Investment limit:- The maximum investment limit for Sovereign Gold Bonds is 4 kilograms for individuals and HUFs and 20 kilograms for trusts and similar entities in a fiscal year. This limit may not be suitable for high net worth individuals who want to invest a larger amount in gold.
7. In summary, while Sovereign Gold Bonds offer many advantages such as ease of investment, safety, and steady returns, there are also some potential drawbacks such as limited liquidity, fixed interest rates, and long-term nature of investment. Investors should weigh these factors carefully before investing in Sovereign Gold Bonds.
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