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In India, gold holds a cultural and economic value and is considered more than just an investment. With the evolution of technology, there are now smarter ways to own gold, free from worries about theft and storage issues and without extra charges. One such option gaining popularity is through Sovereign Gold Bond (SGBs), a government-backed initiative supported by the Reserve Bank of India (RBI).
Launched in November 2015, SGBs provide an alternative to physical gold. They consider export-import values and maintain transparency throughout. RBI’s backing adds an extra layer of security, explaining why SGBs have caught the attention of many investors.
Investing in SGBs is straightforward, interested individuals can approach a SEBI-authorized agent or broker to get started. Once you decide to redeem the bond, the invested amount, adjusted to the current market value, lands in your registered bank account.
Sovereign Gold Bonds offer a secure and hassle-free method for Indians to invest in gold. This aligns seamlessly with our cultural and economic preferences. With SGBs, you get the best of both: the enduring charm of gold and the ease of modern investment.
Why Choose Sovereign Gold Bond Over Physical Gold?
Investing in Sovereign Gold Bonds (SGBs) offers some great advantages. When you buy SGBs, the amount of gold you pay for is secure and when you decide to redeem, you get the current market price. Unlike having physical gold, you don’t need to worry about storing it, saving you from potential risks and costs.
At maturity, you’re guaranteed the gold’s market value without concerns about additional charges or purity issues. It’s a straightforward and reliable way to invest in gold. The bonds are either held in the records of the RBI or in dematerialized (demat) form, reducing the risk of losing physical documents or scrip, among other potential issues.
Let’s closely look at different ways to invest in gold, and we’ll break it down by starting with a certain amount, exploring potential returns, and understanding how gold prices and interest income can play out over 5 years. This will help you figure out which option fits your investment goals best.
| Aspect | Physical Gold | Gold ETFs | Sovereign Gold Bond Schemes (SGBs) |
|---|---|---|---|
|
Initial Investment |
₹100,000 |
₹100,000 |
₹100,000 |
|
Gold Price Increase (5 years, 5% annually) |
₹127,628 |
₹127,628 |
₹127,628 |
|
Interest Income (5 years, 2.5%) |
NA |
NA |
₹12,500
|
|
Final Return |
₹127,628 |
₹127,628 |
₹140,128
|
Let’s discuss the key aspects that make Sovereign Gold Bond a noteworthy investment.
- Risks and Eligibility
While SGBs provide a secure investment, there is a potential risk of capital loss if the market price of gold declines. Individuals, trusts, Hindu Undivided Families (HUFs), charitable institutions, and universities are among the eligible investors. Joint holding is allowed, and minors can invest with applications made by their guardians.
- Application and KYC Norms
Investors can obtain application forms from issuing banks, SHCIL offices, designated post offices, and stock exchanges or download them from the RBI’s website. To invest, you must provide your PAN number issued by the Income Tax Department as part of the KYC process. Online applications through listed scheduled commercial banks offer an issue price of ₹50 per gram less than the nominal value.
- Investment Limits and Interest Rates
SGBs are issued with a minimum investment of one gram and a maximum limit of 4 kg for individuals with a fixed interest rate of 2.50% per annum, credited semi-annually to the investor’s bank account. Both interest and redemption proceeds are seamlessly credited to the bank account provided by the investor during the bond purchase.
- Premature Redemption and Exit Options
While the bond’s tenor is 8 years, early encashment or redemption is allowed after the fifth year from the date of issue on coupon payment dates. Premature redemption requests can be initiated with the concerned bank, SHCIL offices, post offices, or agents, and proceeds are credited to the investor’s bank account. Bonds held in demat form are tradable on exchanges and can be transferred to other eligible investors.
- Gifting and Collateral Use
SGBs can be gifted or transferred to relatives or friends who meet eligibility criteria. These securities are eligible collateral for loans from banks, financial institutions, and non-banking financial companies (NBFCs), subject to the Loan to Value ratio prescribed by the RBI.
- Tax Implications
Interest on SGBs is taxable as per the Income Tax Act 1961, while capital gains tax on redemption is exempted for individuals. Indexation benefits are granted for capital gains over the long term. Also, Tax Deducted at Source (TDS) is not applicable.
- Payment Options and Dematerialization
Investors can make payments through cash (up to ₹20,000), cheques, demand drafts, or electronic fund transfers. Nominees can claim the bonds in case of the investor’s demise, following the provisions of the Government Securities Act 2006 and Government Securities Regulations 2007.
Can I Buy Sovereign Gold Bond from the secondary market?
Sovereign Gold Bonds (SGBs) are not available all year round, but investors who missed the initial offering can buy them in the secondary market, which operates like a stock exchange. To do this, investors need a trading and demat account, and they can track SGB prices on platforms like NSE and BSE.
These bonds usually represent one gram of gold but have low liquidity and are often traded at a discount. Investors often buy them when prices are lower than the issue price. The advantage of purchasing from the secondary market is that there’s no mandatory 5-year lock-in period, and investors can redeem the bonds at their convenience.
Sovereign Gold Bond (SGB) 2 Series: 12 Key Points to Remember
Final Words
The ability to redeem Sovereign Gold Bonds (SGBs) at any time, influenced by the value of gold, makes them appealing. The article provides answers to important questions, helping investors make informed decisions. SGBs are secure, benefit from technology, and eliminate risks like theft and storage.
Happy investing and thank you for reading!
Disclaimer:
This website content is only for educational purposes, not investment advice. Before making any investment, it’s important to do your own research and be fully informed. Investing in the stock market includes risks, and you should carefully read the Risk Disclosure documents before proceeding. Please remember that past performance doesn’t guarantee future results, and due to market fluctuations, your investment goals may not always be achieved.
