Unlisted Shares vs Sovereign Gold Bonds.

The battle between Unlisted shares and debt has been there for a long time now. Moreover, it won't be wrong to say that unlisted shares have consistently topped the charts regarding returns. Although, it stands at a respectable position in terms of risk. Well, on the other side of the coin, the asset classes have yet to be as safe as a healthy credit-rated or government-backed debt. And let me tell you that these aren't just words; it is a fact-based social delivery, the proof of which has been divulged below. 

Since we are comparing Unlisted shares and debt, I believe it will be a good idea to draw parallels between their humble offerings in the Indian context. Let the drums be rolled and crackers are cracked; welcome your first indebted protagonist for the day, Sovereign Gold Bonds. Next, include the not-so-famous and not-so-celebrated contestant, Unlisted shares. Well, I don't think anyone is betting on the latter! 

However, choices are subjective and are, therefore, bound to be changed. Oh! The philosophical me. 

Tracking back, here is a small brief on Sovereign Gold Bonds (SGBs). 

Sovereign Gold Bonds (SGBs) represent debt instruments issued by the Reserve Bank of India on behalf of the Government of India. These bonds are issued in denominations based on grams of gold, with a fundamental unit of 1 gram. SGBs have a fixed maturity period of eight years, and investors can exit in the 5th, 6th, and 7th years, with such exits being executed on interest payment dates.

What else do you need when you have government-backed securities, right? Well, not just you, but everyone needs unlisted shares. It's like they are a must! And since you may ask that, why did I say so? Here is what I have to support my argument. 

Tenor

Tenor is nothing but the expiry date of a bond, and aligning with the fundamental trait of bonds, SGBs have a tenor of 8 years. Post which, the borrower repays the principal amount along with the prior interest or coupon payment. But amigo! Unlisted shares do not have such provisions as investors can stay invested as long as they want. 

Lock-in period 

SGBs have a lock-in period of 4 years, with exit options made available from the 5th year. 

What this means is that there is a generous opportunity cost. How? Because you need the facility of reallocating funds in a higher return-generating investment avenue. It is not the case with unlisted shares, again. Until and unless they don't go for an IPO. However, even if they go, the lock-in is just for six months.  

Returns

Here is where the real talk begins! SGBs offer a semi-annual fixed coupon payment of 2.5%. At the same time, the average returns from various Indian unlisted shares have been ten to a hundred times higher. 

Real Returns 

Generating returns is one thing, and generating actual returns is another. What matters the most is the latter because a return is only helpful if it's higher than the prevailing inflation rate. 

SGBs, in terms of absolute return, hardly surpass the hurdle or inflation rate, even with their semi-annual coupon rates combined. Therefore, Unlisted shares are by far a better choice as the average annualized returns calculated between January 7, 2021, to December 30, 2021, stood at 59.62%. 

Closing Remarks 

Return for Risk! Investment in Unlisted shares is a splendid and excellent choice. However, you must factor in your risk profile before parking your money, as these are riskier than a traditional debt instrument. There is no denying that unlisted shares are supreme when it comes to generating returns, whereas SGBs secure the top spot in terms of security. It's a very simple tradeoff. 

Now that you have seen how unlisted shares outperformed the Sovereign Gold Bonds (SGBs), you might be excited to invest in them. Therefore, to serve your need of the hour, here is Precize, a holistically technology-driven platform that works to democratize the Unlisted shares market of India. Our core mission is to enable investing in the unlisted shares of the high-growth companies of India by streamlining and securitizing the entire process. 

Reserve Access: https://www.precize.in/