Everything You Should Know About Sovereign Gold Bonds (SGBs)

If you buy Gold Coins and Gold Bars as Investment, you are wasting a golden Opportunity to earn some great returns. SBI Gold Bonds are RBI mandated Certificates issued against grams of Gold, allowing the Individuals to invest in Sovereign Gold Bonds (SGBs) without the strain of safekeeping their physical Assets. SGB act as a secure Investment tool among Individuals as the Gold prices are less sensitive to Market fluctuations.

A SGB is dominated in grams of Gold. One can get multiples of Grams (1gm*X). So, the minimum Investment is 1 Gram. The maximum Gold one can buy through these Gold Bonds is 4 Kgs and a Trust can buy is upto 20 Kgs. Moreover, Nomination facility is also available.

Why should one buy SGB rather than physical gold?

The quantity of gold for which the investor pays is protected, since he receives the ongoing Market Price at the time of redemption/ premature redemption. The SGB offers a superior substitute to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest.

Who is eligible to invest in the SGBs?

Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB. Eligible investors include individuals, HUFs, trusts, universities and charitable institutions. Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGB till early redemption/maturity.

Whether joint holding will be allowed?

Yes, joint holding is allowed.

Can a Minor Invest in SGB?

Yes. The application on behalf of the minor must be made by his/her guardian.

What is the rate of interest and how will the interest be paid?

The Gold Bond interest rate is 2.50% per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.

When will the customers be issued Holding Certificate?

The customers will be issued Certificate of Holding on the date of issuance of the SGB.

At what price the bonds are sold?

The nominal value of Gold Bonds shall be in Indian Rupees fixed based on simple average of closing price of gold of 999 purity, published by the India Bullion and Jewelers Association Limited, for the last 3 business days of the week preceding the subscription period.

Can I encash the bond anytime I want? Is premature redemption allowed?

Though the tenor of the bond is 8 years, early encashment/redemption of the bond is allowed after fifth year from the date of issue on coupon payment dates. On the other hand, in the case of online buying of SGBs, one doesn’t have to wait for 5 years for redemption. An online buyer can redeem it on the same day of the issuance of Bonds.

What are the Tax implications on Interest as well as on Capital Gain?

Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted.

Features of Sovereign Gold Bonds

• SGBs are Government securities denominated in grams of gold (1 unit = 1 gram).
• A minimum investment equivalent to the price of 1 gram of gold must be made, while the maximum limit is equal to the value of 4kg of gold for individuals.
• Issued by the Reserve Bank of India on behalf of the Government of India.
• Gold bonds are issued for a period of 8 years, with premature withdrawal permissible from the 5th year.
• Individuals willing to cash-in their investment can do so after a mandatory holding period of 5 years.
• Investors will earn returns linked to gold price.
• Additionally, fixed interest of 2.75% per annum is associated with the sovereign gold bond scheme, which is disbursed half-yearly to investors.
• The Sovereign gold bond scheme 2020 can be traded in the secondary market after 14 days from an initial subscription date, subject to a notice published by the RBI.

Advantages of Investing in SGB

• The principal aim of such treasury bonds was to reduce the hassles concerned with gold investments, as bullions and other physical forms of investments required proper and secure storage.
• These Gold Bonds are backed by the Government, as chances of defaults on repayment is zero.
• Gold prices demonstrate extensive capital appreciation. Rates of growth of such assets are considerably higher than the prevailing inflation rates a country, crucial as an investment avenue.
• RBI will announce the price before the issue date which will be fixed on the previous week's simple average of closing price of gold of 999 purity published by India Bullion and Jewelers Association Ltd (IBJA).
• The tenure of Bond is 8 years with an option to redeem from 5th year onwards on the date on which Interest is payable.
• SGB can be used as collateral for loans Up to 75% of the market value of such bonds can be availed as a loan from any scheduled financial institution, as stipulated by the RBI’s LTV regulations.