Gold provides a meaningful way to diversify your portfolio and lower your overall financial risk at all times. It stabilizes portfolios, since gold prices tend to counteract stock prices. In the era of digitalization across all sectors, Sovereign Gold Bonds (SGB) are gaining quite popularity among the investors as it is a lucrative investment option when markets are unstable. It is considered a hedge against inflation and a safe haven against uncertainty. Let’s dissect the SGB scheme issued by the Government of India on the following factors:
- Features & Benefits
- Upcoming SGB Issue Dates
- Documents Required
- Payment and Redemption
- Ways to exit from investment
- Taxability
- How to Apply
Features
| Denomination | Sovereign gold bonds (SGB) are government backed bonds denominated in multiple gram(s) of gold. |
| Interest | 2.50% per annum paid on the amount of initial investment. Interest will be credited on a semi-annual basis to the investor’s bank account. |
| Eligible investors | Individuals resident in India, HUFs, trusts, universities and charitable institutions. |
| Minimum Investment | 1 Gram Gold |
| Maximum Investment | 4 kg for individuals, HUF and 20 kg for trusts and similar entities notified by the government from time to time per fiscal |
| Online Application | The issue price of the Gold Bonds will be ₹ 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode. |
| Duration | 8 Years
Premature Redemption allowed from 5th year of the date of issue on the interest payment dates. |
| Loan Facility | SGBs are eligible to be used as collateral for loans from banks, financial Institutions and Non-Banking Financial Companies (NBFC). |
| Nomination Facility | Available |
Benefits
- The SGB offers a superior alternative to holding gold in physical form by eliminating the risks and costs of storage.
- Investors are assured of the market value of gold at the time of maturity and periodical interest.
- SGB is free from issues like making charges and purity in the case of gold in jewelry form.
- The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.
- Interest earned on SGB is an added advantage for gold bond investors over physical gold buyers plus the advantage of movement of gold price is obviously available.
- Since the minimum investment is just 1 gram of gold, it is within reach of most of the middle class investors and can easily take this opportunity to invest in gold.
Documents Required
Documents such as PAN, Bank account details and Demat details are required.
Payment and Redemption
| Payment | Redemption |
| Payment for the Bonds will be through electronic funds transfer / cheque / demand draft | On maturity, the Gold Bonds shall be redeemed in INR and the redemption price shall be based on the simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited. |
Ways to exit from investment
- Although the tenor of the bond is 8 years, early encashment/redemption of the bond is allowed after the fifth year from the date of issue on coupon payment dates.
- The bond will be tradable on Exchanges, if held in demat form. It can also be transferred to any other eligible investor.
- In case of premature redemption, investors can approach the concerned bank/Post Office/agent thirty days before the coupon payment date. Request for premature redemption can only be entertained if the investor approaches the concerned bank at least one day before the coupon payment date.
- The proceeds will be credited to the customer’s bank account provided at the time of applying for the bond.
Taxability
- Interest Income– It will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). However, TDS is not applicable.
- Capital Gain– Exempted if arising on redemption of SGB to an individual. But the tax treatment is not so favorable if you exit the bond before that. Long Term Capital Gain (LTCG)/ Short Term Capital Gain (STCG) will be applicable as per normal taxation definition although the indexation benefits will be provided on long term capital gains arising to any person.
How to Apply
You can apply for Sovereign Gold Bonds through our platform thefixedincome.com and in case of any further queries register on thefixedincome.com. We are ready to help.
Now is the time to invest in gold bonds to protect your portfolio, no matter where the economy turns. In addition to this, SGBs can also be gifted to relatives/ friends/ etc. The Bonds shall be transferable in accordance with the provisions of the Government Securities Act 2006 and the Government Securities Regulations 2007 before maturity by execution of an instrument of transfer which is available with the issuing agents.
