Gold
The Nov 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:
The Sep 2016 SGB showcased a fantastic return on maturity compared to other investment avenues like fixed deposits and some equity mutual funds.
The Aug 2016 SGB showcased a fantastic return on maturity compared to other investment avenues like fixed deposits and some equity mutual funds.
The Mar 2016 SGB showcased a fantastic return on maturity compared to other investment avenues like fixed deposits and some equity mutual funds.
The Feb 2016 SGB showcased a fantastic return on maturity compared to other investment avenues like fixed deposits and some equity mutual funds.
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This is the SGB that was issued in Nov 2016 at a price of ₹3,007 per gram.
Related:
Sovereign Gold Bond (SGB): complete issue price history in India
| Series | 2016-17 Series III SGBNOV24 |
|---|---|
| Issue date | 17-Nov-2016 |
| Issue Price | ₹3,007 |
| Interest | 2.50% |
| Maturity date | 16-Nov-2024 |
| Maturity price | ₹7,788 (tax free) |
| Headline return % | 159% |
| Gold price return | 12.63% |
| Rupee fall vs USD | 24.06% |
| Total interest received | ₹601 (taxable at slab) |
| XIRR (no tax on interest) | 14.41% |
| XIRR (30% tax on interest) | 13.87% |
The SGB has given a return higher than the gold price due to the interest paid every six months.
Related:
Frequently asked questions on Sovereign Gold Bonds (SGB): the complete guide
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 |
|---|---|---|---|---|---|
| Nov-16 | Investment | -3,007 | -3,007 | -3,007 | -3,007 |
| May-17 | 6-m interest | 37.59 | 33.83 | 30.07 | 26.31 |
| Nov-17 | 6-m interest | 37.59 | 33.83 | 30.07 | 26.31 |
| May-18 | 6-m interest | 37.59 | 33.83 | 30.07 | 26.31 |
| Nov-18 | 6-m interest | 37.59 | 33.83 | 30.07 | 26.31 |
| May-19 | 6-m interest | 37.59 | 33.83 | 30.07 | 26.31 |
| Nov-19 | 6-m interest | 37.59 | 33.83 | 30.07 | 26.31 |
| May-20 | 6-m interest | 37.59 | 33.83 | 30.07 | 26.31 |
| Nov-20 | 6-m interest | 37.59 | 33.83 | 30.07 | 26.31 |
| May-21 | 6-m interest | 37.59 | 33.83 | 30.07 | 26.31 |
| Nov-21 | 6-m interest | 37.59 | 33.83 | 30.07 | 26.31 |
| May-22 | 6-m interest | 37.59 | 33.83 | 30.07 | 26.31 |
| Nov-22 | 6-m interest | 37.59 | 33.83 | 30.07 | 26.31 |
| May-23 | 6-m interest | 37.59 | 33.83 | 30.07 | 26.31 |
| Nov-23 | 6-m interest | 37.59 | 33.83 | 30.07 | 26.31 |
| May-24 | 6-m interest | 37.59 | 33.83 | 30.07 | 26.31 |
| Nov-24 | Maturity | 7,825.59 | 7,821.83 | 7,818.07 | 7,814.31 |
| 16-Nov-24 | XIRR | 14.41% | 14.23% | 14.05% | 13.87% |
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.
We all know that SGB gives the highest returns out of all types of gold investment: The Ultimate Guide to Which Type of Gold Gives the Best Returns.
We can see that the SGB has given a return higher than the gold price movement (12.63%) 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 159% return by 24.06% or the yearly return to a more pedestrian 9.64%.
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 | 14.41% | 14.23% | 14.05% | 13.87% |
| FD | 7.00% | 6.30% | 5.60% | 4.90% |
To understand if you should invest in SGBs:
If we look at the universe of all equity mutual funds, and exclude thematic and sectoral funds from it, there were 141 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 14 funds have been beaten by the SGB.
| Fund | Return pre-tax | Return after-tax |
|---|---|---|
| PGIM India Large Cap Fund | 4.20% | 3.83% |
| Taurus Flexi Cap Fund | 12.73% | 11.83% |
| Taurus Large Cap Fund | 12.81% | 11.91% |
| LIC MF Flexi Cap Fund | 13.44% | 12.51% |
| Nippon India Tax Saver Fund | 13.71% | 12.77% |
| Aditya Birla Sun Life ELSS Tax Saver Fund | 13.78% | 12.84% |
| Sundaram Diversified Equity (ELSS) Fund | 13.99% | 13.04% |
| Franklin India Bluechip Fund | 14.18% | 13.22% |
| PGIM India Large Cap Fund | 14.42% | 13.45% |
| Aditya Birla Sun Life Equity Advantage Fund | 14.47% | 13.50% |
| BANDHAN Flexi Cap Fund | 14.52% | 13.54% |
| DSP Top 100 Equity Fund | 14.67% | 13.68% |
| Quantum ELSS Tax Saver Fund | 14.82% | 13.83% |
| LIC MF Large Cap Fund | 14.84% | 13.85% |
If we assume zero tax in both cases, then the following 21 funds have been beaten by the SGB.
| Fund | Return pre-tax | Return after-tax |
|---|---|---|
| PGIM India Large Cap Fund | 4.20% | 3.83% |
| Taurus Flexi Cap Fund | 12.73% | 11.83% |
| Taurus Large Cap Fund | 12.81% | 11.91% |
| LIC MF Flexi Cap Fund | 13.44% | 12.51% |
| Nippon India Tax Saver Fund | 13.71% | 12.77% |
| Aditya Birla Sun Life ELSS Tax Saver Fund | 13.78% | 12.84% |
| Sundaram Diversified Equity (ELSS) Fund | 13.99% | 13.04% |
| Franklin India Bluechip Fund | 14.18% | 13.22% |
| PGIM India Large Cap Fund | 14.42% | 13.45% |
| Aditya Birla Sun Life Equity Advantage Fund | 14.47% | 13.50% |
| BANDHAN Flexi Cap Fund | 14.52% | 13.54% |
| DSP Top 100 Equity Fund | 14.67% | 13.68% |
| Quantum ELSS Tax Saver Fund | 14.82% | 13.83% |
| LIC MF Large Cap Fund | 14.84% | 13.85% |
| Navi ELSS Tax Saver Fund | 15.20% | 14.20% |
| Franklin India Equity Advantage Fund | 15.28% | 14.27% |
| Aditya Birla Sun Life Nifty 50 Index Fund | 15.28% | 14.27% |
| Franklin India INDEX FUND NSE NIFTY 50 INDEX FUND | 15.29% | 14.28% |
| LIC MF Nifty 50 Index Fund | 15.29% | 14.28% |
| Groww Largecap Fund | 15.34% | 14.33% |
| Taurus Nifty 50 Index Fund | 15.40% | 14.39% |
It is interesting to note that pre-tax, the SGB has beaten the Nifty 50 index funds over this period.
Note: All of these are direct plans and regular plan returns would have been obviously worse: Do not make this mistake when investing in mutual funds.
Readers should understand that this comparison of two different asset classes should be done not on this point-to-point fashion but using rolling returns only: What are rolling returns in case of mutual funds? Why is this better than point-to-point returns?
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This post titled SGB issued in Nov 2016 has given 159% return in 8 years. How does that compare with FDs and equity mutual funds? first appeared on 13 Nov 2024 at https://arthgyaan.com
