Sovereign Gold Bonds and its features


Many investors find the Gold ETFs a suitable alternative to buying physical gold

These are the gold bonds issued by the Reserve Bank of India in consultation with the Government of India

Indians adore gold and wears them, especially on special occasions. In fact, this metal is associated with wealth and prosperity and sometimes even offered to deities. Gold symbolizes wealth, and it is considered as a status symbol. However, today, people buy gold as it is equivalent to liquid cash.

Today, many investors realize that gold is a great investment option. The main reason is that it can generate reasonable returns. Besides, Indians have a fetish for gold as per traditions. If you want to buy physical gold, you need to bear the cost of its storage like locker rents, it also comes with  a risk of impurity, the liquidity is low if Gold held in physical form .Apart from that, buying and selling physical gold is not so easy.

Many investors find the Gold ETFs a suitable alternative to buying physical gold as it helps them to trade gold on the stock exchange and earn good returns. They can do it similar to handling the physical gold.

Now, another great option is available for those who plan to invest in gold. This investment choice is available in Demat form, just like investing in physical gold and can be traded on the stock exchange. By investing in it, you can get an interest on the amount that you invested in gold. These are Sovereign Gold Bonds (SGBs).

What is Sovereign Gold Bond?

These are the gold bonds issued by the Reserve Bank of India in consultation with the Government of India. The Government of India introduced the Sovereign gold bonds under the Gold Monetization Scheme in 2015. You can invest in an asset class by choosing this scheme, which is a good alternative to physical gold.

Public issues of Sovereign Gold Bonds by RBI are available in tranches. That means these bonds are come with specifying series along with its date of allocation and the dates of subscription of series of bonds.

Since the Sovereign Gold Bonds are issued by RBI on behalf of the Government of India, these bonds hold a sovereign guarantee. That means these bonds are issued from time to time with a specified close date at the discretion of the government. Besides, such bonds are open for the public for subscribing.

Sovereign Gold Bonds are available to purchase in the denominations of units of one gram gold or multiples thereof. If you plan to invest in this type of gold scheme, the minimum investment required is one gram.

Features of Sovereign Gold Bond

Explaining the features help you to understand these bonds in detail.

  • Eligibility to buy sovereign gold bonds -People realized the importance of investing in gold as it can give good returns to them. Sovereign Gold Bonds can be a good scheme for those who wish to invest in gold. But you need to meet some eligibility criteria in order to invest in this scheme.Any resident individual is eligible to buy sovereign gold bonds, including HUFs, charitable trusts, trusts, and universities. A parent or guardian is also allowed to purchase this bond on behalf of a minor. However, sovereign gold bonds cannot be purchased by a non-resident or ordinarily non-resident.However, if you are an NRI, but you purchased sovereign gold bonds when you are a resident individual, you can hold the bond till its maturity. But, you are not allowed to repatriate the maturity amount from this investment. You are also not allowed to trade these bonds on the stock exchange.
  • Know the denomination of gold bond –An investor needs to purchase at least a basic unit of 1 gram in a single purchase to invest in the Sovereign gold bond. That is the minimum investment required to invest in this plan. Each investment of you in this scheme will be denominated in multiples of gram or grams of gold. If the gold rate per gram is Rs.4000, your investment will be denominated in 2.5 grams of gold for investing Rs.10, 000 in this scheme.
  • Get an idea about the maximum amount to invest –A resident individual in India is eligible to buy sovereign gold bonds, but there is some limitation for the investment in this scheme. There is some limitation on the amount of gold that an investor can hold in sovereign gold bond in a financial year (from April to March) based on their category.As per this limitation, individuals and HUFs can invest a maximum of 4 kg gold in Sovereign Gold Bonds, but trust and similar entities can invest up to a maximum of 20kg gold.

    This limitation will include bonds purchased under various tranches during the initial issuance of sovereign gold bonds by the government.

  • Issue Price of SGBs –The nominal value of Sovereign gold funds shall be fixed in Indian rupees based on the simple average of the closing rate of 999 purity gold (24 carets) for the last 3 business days of the week. Jewelers Association and India Bullion publish the price of 999 purity gold regularly.You will get a discount of Rs.50 per gram at the issue price for those who subscribe to the gold bond online and pay the price through any digital mode.
  • Interest Rate –As an investor, you will get an interest on the amount invested in Sovereign Gold Bonds.  They get the interest semi-annually at the rate notified by the Reserve Bank of India. The interest till now is 2.5% per annum.
  • Redemption –Like the interest rate, the redemption price of Sovereign Gold Bonds is also fixed. Investors will get the redemption price on a simple average of the closing price of gold of 999 purity for the previous three business days from the date of repayment. It is based on the price published by the Jewelers Association Ltd. and the India Bullion.
  • Listed on the stock exchange –The Government of India enables the trading of sovereign gold bonds on the stock exchanges like NSE and BSE for the easy trading of these bonds. It can be held in Demat form, and an investor can buy these bonds even after the closing of its subscription period.
  • Maturity of SGBs –The maturity period of the sovereign gold bonds is for eight years. But it has an exit option in the 5th, 6th, and 7th year which can be applied on its interest payment dates. You cannot redeem the sovereign gold bonds before the end of the 5th year. But an investor has the option to transfer his or her SGBs via a stock exchange platform. In that sense, SGBs have no lock-in period.

 

  • Use as collateral – One of the great advantages of investing in Sovereign Gold Bonds is that investors can use it as collateral for loans. Its LTV (loan-to-value ratio) is set to be valued equal to the value of ordinary gold loan authorized by the Reserve Bank of India. It is very useful for investors as they can use their gold bonds as security like stocks against loans.

 

  • Payment Options – Investors can buy SGBs in cash for transactions up to Rs.20,000 or by cheque, Demand Draft, or electronic mode. There is an option to use cash for its purchase, but on transfer or redemption, the amount will be credited to the bank account of the investor.

How to buy Sovereign Gold Bonds?

An investor needs to fill an application form in order to invest in Sovereign Gold Bonds. You can get the application from the issuing banks or any of the designated post offices. The application form is also available on the website of the Reserve Bank of India.

Everybody eligible to invest in gold bonds can download the form from this website. You can also apply for investing in these funds on the websites of a few listed commercial banks. An investor must have a PAN for investing in Sovereign Gold Bonds. Even if you apply for investing in these gold bonds, it will allot to you only if you have the eligibility for that.

Investors will get an interest at the rate 2.5% per year for their investment in these bonds. An investor can exit the bond before it maturity period, but it can attract capital gains in that case. Sovereign gold bonds sell through all the Scheduled Commercial banks, designated post offices, Stock Holding Corporation of India Limited (SHCIL).

Recognized stock exchanges like National Stock Exchange of India Limited and Bombay Stock Exchange Limited are also eligible to sell these gold bonds. But you can get such bonds through small finance and payment banks.

Tax treatment of Sovereign gold bonds

The taxation of Sovereign Gold Bond is in favor of investors. The capital gains that you receive after the maturity period by investing in these bonds are exempted from tax that encourages many investors to switch to non-physical gold. But it will attract capital gain tax if you transfer the gold bonds before its maturity. The interest received on these bonds is taxable per financial year as per the slab rate.

Sovereign Gold Bonds are a safe investment option for investors as these instruments are issued by RBI in consultation with the Government of India. However, the redemption value of these bonds will depend on the actual market price of the gold. So, changes in the market value of gold can put your investment at risk. But the situation is same in the case of both physical gold and gold ETFs.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh