Why Sovereign Gold Bond (SGB) Is A Good Investment?
Updated On Jan 02, 2024
The gold bond scheme continues to be a popular investment for ages. It has been respected all over the world for its value and rich history. People have wanted to hold gold for various reasons. With various innovations, gold trading has evolved from physical gold to virtual trading. However, all forms of gold are equally attractive for investments. Let us know why the Sovereign Gold Bond (SGB) scheme is still very good for investment in 2024.
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Why Gold Bond Scheme Is A Good Investment in 2024
Here’s a list of reasons why the Sovereign Gold Bond (SGB) scheme is good for investment in 2023 - 2024:
1. Gold has maintained its value
Throughout the years, gold has held on to its value and people look at it as a way to pass on and preserve wealth from one generation to another.
2. Holds a good price when the reserve currency loses its value
Gold prices rise when the US dollar or the reserve currency falls. Gold has been termed as the haven for this reason. People start flocking to gold's security at the time of a fall in the value of reserve currency.
3. Hedge against inflation
Gold has been an excellent hedge against inflation as the prices rise when the cost of living increases.
4. Gold’s purchasing power soars during deflation
Prices decrease and business activity slows down at times of deflation and the economy gets burdened with excessive debt. The relative purchasing power of the gold soars while other prices drop.
5. Crisis commodity at times of geopolitical uncertainty
When the world tension rises, people turn to relative safety. When the confidence in governments is low, the gold prices are often seen to be rising. The European Union crisis gave way to the major gold price movements this year.
6. Increase in demand
The increased wealth of the emerging economies boosted the demand for gold. In most countries, it is intertwined into its culture. Indians buy a lot of gold, especially during the wedding season and China buys gold bars as they are a traditional form of saving. The gold demand has been growing among investors as well.
7. Used for portfolio diversification
The key to diversification is to invest in products that are not closely correlated to each other. Gold happens to have a negative correlation with stock and other financial instruments. Hence, it is a perfect choice to diversify your portfolio and to ensure that you are reducing the overall volatility and risk.
Life Insurance Vs Sovereign Gold Bond (SGB) Scheme
The decision whether to invest in a gold bond scheme or a life insurance plan depends on many factors such as the goal of investment, risk appetite, investment amount at disposal and so forth. As you have checked the benefits of the SGB Scheme, let us understand the benefits of life insurance to know the difference between sovereign gold bonds and life insurance.
1. Provide financial security
The primary benefit of a life insurance policy is the financial security that the policy provides. The policy covers the risk of premature death and secures the family against possible financial repercussions that might incur if the breadwinner dies prematurely. So, if you invest in a life insurance plan, you can ensure the financial security of your family members even in your absence or in case of an eventuality.
2. Helps in the fulfilment of your life goals
life insurance plans have the lowest premium rate since they cover only the risk of premature death. These low rates help you opt for high sum assured levels which would be sufficient to take care of your financial goals. Thus, in your absence, the considerable coverage amount can give your family funds needed for your child’s future, their lifestyle needs, paying home loans, buying a home or even for retirement planning.
3. Provides an all-round protection
Gone are the days when life insurance plans provide coverage only against death. Today’s life insurance plans have evolved and allow you different rider benefits to enhance your coverage. Some benefits are inbuilt while some are available at an additional cost. These riders help in providing all-inclusive coverage so that your loved ones have financial assistance in emergencies other than death. For instance, you can opt for a personal accidental death to enhance the base term plan coverage.
4. Tax benefits
Life insurance plans, like other life insurance policies, offer tax benefits on the premiums that you pay. Premiums paid are allowed as a deduction under Section 80C of the Income Tax Act, 1961 up to a maximum of INR 1.5 lakhs. The death benefit paid by the plan is completely tax-free. Moreover, if you opt for the return of premium plans, the premium refunded on maturity would also be a tax-free income under Section 10 (10D) of the Income Tax Act, 1961.
SGB or Life Insurance: Which is Better?
It would be a mistake if we declare any one of them as the clear winner. SGB and Life insurance both offer a unique set of benefits. A wise approach is to distribute your funds proportionately between gold bond schemes and life insurance plans.
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