The Mar 2016 SGB showcased a fantastic return on maturity compared to other investment avenues like fixed deposits and some equity mutual funds.
This article is a part of our detailed article series on the new issues of Sovereign Gold Bond (SGB) and well as maturity of existing SGBs. Ensure you have read the other parts here:
If you had bought and held this SGB until maturity, then this is the return you would have got based on the amounts you paid, the intermediate interest you got and the final maturity value:
Date
Description
No tax
10% tax
20% tax
30% tax
Mar-16
Investment
-2,916
-2,916
-2,916
-2,916
Sep-16
6-m interest
40.10
36.09
32.08
28.07
Mar-17
6-m interest
40.10
36.09
32.08
28.07
Sep-17
6-m interest
40.10
36.09
32.08
28.07
Mar-18
6-m interest
40.10
36.09
32.08
28.07
Sep-18
6-m interest
40.10
36.09
32.08
28.07
Apr-19
6-m interest
40.10
36.09
32.08
28.07
Oct-19
6-m interest
40.10
36.09
32.08
28.07
Apr-20
6-m interest
40.10
36.09
32.08
28.07
Oct-20
6-m interest
40.10
36.09
32.08
28.07
Apr-21
6-m interest
40.10
36.09
32.08
28.07
Oct-21
6-m interest
40.10
36.09
32.08
28.07
Apr-22
6-m interest
40.10
36.09
32.08
28.07
Oct-22
6-m interest
40.10
36.09
32.08
28.07
Apr-23
6-m interest
40.10
36.09
32.08
28.07
Oct-23
6-m interest
40.10
36.09
32.08
28.07
Mar-24
Maturity
6,641.10
6,637.09
6,633.08
6,629.07
28-Mar-24
XIRR
12.80%
12.60%
12.39%
12.18%
It is important to note that to get the return in the table above, which is a calculation similar to that of Yield To Maturity or YTM of a bond, the intermediate 6-monthly interest payments must be also invested in SGB, if needed from the secondary market: How to buy SGB from the stock market?.
Simply adding the gold price return with the interest rate will not give the return of the SGB since the interest also has to compound at the same rate.
Did you know that we have a private Facebook group which you can join for free and ask your own questions? Please click the button below to join.
We can see that the SGB has given a return higher than the gold price movement (10.75%) over 8 years due to the interest it pays out.
Please note that the rupee depreciation against the US Dollar, since most of our gold is imported, reduces the headline 126% return by 25.94% or the yearly return to a more pedestrian 7.60%.
We will now compare this SGB return to other asset classes starting with FD.
SBI was giving 5-10 year FDs offering a modest 7% for non-senior citizens which would have course give a return much lower due to tax.
Other banks would have given higher returns but their risk would have been higher as well though all banks are covered under DICGC insurance.
Investment
No tax
10% tax
20% tax
30% tax
SGB
12.80%
12.60%
12.39%
12.18%
FD
7.00%
6.30%
5.60%
4.90%
To understand if you should invest in SGBs:
Comparing with mutual funds
If we look at the universe of all equity mutual funds, and exclude thematic and sectoral funds from it, there were 125 funds at the time of issuance of this SGB which are still active today.
If we consider the 30% post-tax return case, the following funds have been beaten by the SGB.
Fund
Return pre-tax
Return after-tax
PGIM India Large Cap Fund
4.95%
4.52%
Taurus Flexi Cap Fund
12.41%
11.53%
LIC MF Flexi Cap Fund-
12.73%
11.84%
Taurus Large Cap Fund
12.86%
11.96%
If we assume zero tax in both cases, then the following funds have been beaten by the SGB.
What's next? You can join the Arthgyaan WhatsApp community
You can stay updated on our latest content and learn about our webinars.
Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.
For resident Indians 🇮🇳:
For NRIs 🇺🇸🇬🇧🇪🇺🇦🇺🇦🇪🇸🇬:
To understand how this article can help you:
If you have a comment or question about this article
The following button will open a form with the link of this page populated for context:
If you liked this article, please leave us a rating
The following button will take you to Trustpilot:
Discover an article from the archives
Previous and next articles:
TaxCalculatorHouse Purchase
How to save tax using Section 54F for an under construction house?
This article shows you the right way to apply Section 54F to save tax when you sell shares and mutual funds to buy an under-construction house.
Published: 24 March 2024
7 MIN READ
TaxMutual Funds
How to calculate and save tax on mutual funds?
This article is expected to give investors in India a complete guide on the topic of calculation of taxes on mutual funds.
Published: 27 March 2024
5 MIN READ
Latest articles:
ChildrenNPSBudget
NPS Vatsalya: A Gimmicky Product That Should Be Avoided If You Are Serious About Investing For Your Children
This article discusses the NPS Vatsalya scheme that does not make any sense as a product for anyone even if you plan to invest for your children’s retirement.
Published: 26 July 2024
6 MIN READ
BudgetMutual FundsTax
Budget 2024: How will international, debt and gold/silver funds get taxed going forward?
This article shows you how debt, international and gold/silver mutual funds will get taxed as per the new capital gains tax declared in the Union Budget 2024.
Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.
This post titled SGB issued in Mar 2016 has given 126% return in 8 years. How does that compare with FDs and equity mutual funds? first appeared on 25 Mar 2024 at https://arthgyaan.com