Sovereign Gold Bonds: New Alternative of Physical Gold
Sovereign Gold Bonds - A complete guide

Sovereign Gold Bonds – A Complete Guide

Indians adore gold so much. And now you have a better option now if you want to buy gold for investment purposes. Indian Government and Reserve Bank of India has introduced Sovereign Gold Bonds which enables investors to buy gold in certificate form and earn interest on the amount invested in Gold Bonds.

Let’s have a look at the features, and benefits of Sovereign Bonds.

What are Sovereign Gold Bonds?

Sovereign Gold Bonds are the alternatives of physical gold and are in form of certificates issued by the Government. The certificate indicates the amount, date and quantity of gold bought by the investor. The certificate also carries the rate of interest along with the value of gold bought.

What are the features of Sovereign Gold Bonds?

Sovereign Gold Bonds comes under the debt fund category (similar to fixed deposit certificates or National Savings Certificates) having prefixed interest rates and tenure. It’s a low-risk investment plan, ideal for investors with low-risk appetite.

Features of Sovereign Gold Bonds-

1. Eligibility

Only Indian Residents including individuals, HUFs, trusts, Universities, charitable institutions are eligible to invest in Sovereign Gold Bonds.

2. Value of Bond

Gold Bonds are issued at an average price of 999 purity gold (in Indian Rupees) in the previous week as published by Indian Bullion and Jewellery Association (IBJA).

3. Tenure

The maturity period of SGB is 8 years. You can exit from 5th year onwards on the interest payout dates only.

4. Denominations

You can buy in various denominations such as 1 gram, 2 grams, 5 grams, 10 grams with a minimum investment quantity is 1 gram of gold and maximum limit of 4 kgs of Gold. In case of joint holding, the investment limit of 4 kg is applicable to the first applicant only.

5. Issue of Certificates

Reserve Bank of India issues the bonds on behalf of the Government. Further, post-offices, Banks, and NBFCs acts as intermediary to collect and redeem Sovereign Gold Bonds on behalf of Government.

You can convert the gold bonds into Demat form.

6. KYC Norms

Know-your-customer (KYC) norms are as same as required for purchase of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN or TAN /Passport are required.

7. Interest Rates

Sovereign Gold Bonds offer a fixed rate of 2.50% per annum. Interest will be credited semi-annually to the investor’s account.

8. Liquidity

Sovereign Gold Bonds are listed in commodity exchanges/NDS-OM and can be bought and sold in the secondary market before maturity. You can also trade gold bonds.

9. Loans

You can use the gold bonds as collateral security for taking loans. The loan-to-value (LTV) ratio is equal to ordinary gold.

10. Maturity

The maturity amount payable (principal + interest) will be in Indian Rupees based on an average of the closing price of gold of 999 purity in three previous working days.

11. Taxation of Sovereign Gold Bonds

SGB is a good tax-saving investment. Because SGBs don’t attract capital gains tax to an individual if held till maturity. The indexation benefits are also provided to long term capital gains on transfer of bond from one person to another person.

However, Interest earned on Gold Bonds is taxable annually as per the Income Tax Act, 1961 (43 of 1961).

12. Commission

Distribution offices levy 1% Commission for distribution of subscription amount. 50% is shared to or sub-agents for the business procured through them.

What are the Benefits of Sovereign Gold Bonds?

  1. Quality always remains a major concern while buying physical gold from jewelers but Sovereign Gold Bonds will do away with this hurdle.
  2. Sovereign Gold Bonds also score above Gold ETFs as there is no interest offered in Gold ETFs.
  3. Physical Gold attracts wealth tax while Sovereign Gold Bond doesn’t.

Sovereign Gold Bonds vs. Gold Monetization Scheme

Both Sovereign Gold Bond and Gold Monetization Scheme aim to curb the import of Gold via different routes. Under SGBs the investor would get the certificate of the amount he has invested into gold while in GMS the holder of gold would get the certificate of the amount of gold he has deposited.

That’s all about Sovereign Gold Bonds. If you have any queries about SGBs, let me know in the comments.

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