What is a Sovereign Gold Bond?
SGBs, or sovereign gold bonds, are the ideal substitute for actual or physical gold. You can benefit from capital growth and annual interest with these bonds. These Indian government-issued bonds also do away with a number of hazards related to gold that are present in physical form.
During primary issuance, investors subscribe to SGBs by paying the continuing price of Gold. The price is disclosed by regulators before the issue begins. These bonds are safely held in Demat form after allocation, removing risk and storing expenses. Investors receive redemption money based on the current gold price at maturity. SGBs provide investors with returns correlated to gold.
Investors also receive a fixed interest of 2.50% p.a. on their investment's half-yearly value in addition to income from the gold.
Takeaways: Government securities called SGBs are valued in grams of gold. They serve as alternatives to holding actual gold. The issuance price for investors must be paid in cash, and the bonds must be redeemed in cash when they reach maturity. The Reserve Bank issues the Bond on behalf of the Government of India.
- Interest Earned: GOI rewards a nominal rate of return (taxable) of 2.5% per annum payable half yearly.
- Limit per Financial Year: The minimum investment in the bonds shall be one gram, with a maximum limit of 4 KG for individuals, HUF, and 20 KG for trusts and similar entities per fiscal year (April-March), as notified by the government from time to time.
- Maturity: The tenor of the Bond will be for a period of 8 years, with exit option after 5th year to be exercised on the interest payment dates.
Investment options for Gold
There are broadly three options for investing in gold. All three have their pros and cons. For better understanding, we have compared all three with different parameters.
- Through ETF route
- Through Gold Bonds
Please find the difference between ETF vs. Gold Bonds vs. Physical Gold
SGB (Gold Bonds)
|Demat / Physical in IPO||Physical|
Trade Real time
|dependent on Jewelers|
2.5% P.A. payable half yearly
|Tax on Interest||Nil||Normal Slab||Nil|
|Charges||Expense Ratio||Nil||Locker charges|
Tax - Capital Gain
|Short Term - (3 Years)||Normal Slab||Normal Slab||Normal Slab|
Long term (>3 Years)
|20% with indexation||20% with indexation till maturity. Tax exempted on redemption||20% with indexation|
Here’s why you should invest in SGB:
- Freedom from hassle of storing physical gold
- Earn additional 2.50% (Fixed Rate) interest p.a. on the amount of initial investment (face value)
- Can be used as collateral for Loans & Tradable on exchange depending on bank or NBFC.
- Exempt from Capital Gains Tax on redemption.
How To Buy Sovereign Gold Bonds?
- Buying sovereign gold bonds is now more convenient than ever. Let us help you with the process of how to buy sovereign gold bonds online.
- Please note - Investors applying and paying online get a discount of Rs 50 per gram. Providing a PAN number while purchasing SGBs is mandatory.
- SGBs are periodically offered for sale when the government releases them in instalments. Whenever, the sale will be open for a week. Earlier issues are available at market pricing for those who want to purchase at different dates. The offices of nationalised banks, scheduled foreign banks, scheduled private banks, Stock Holding Corporation of India, designated post offices, and authorised trading members of stock exchanges are places where SGBs can be purchased when the window for sale is open.
- You should be familiar with how to buy Sovereign Gold Bonds online in addition to how to purchase them through offline sources.
- Through the websites of the listed scheduled commercial banks, customers can also submit an application online. For investors applying online and paying against the application using digital means, the issue price of the Gold Bonds will be Rs. 50 per gram less than the nominal value.
Interest Rate Payment
Sovereign gold bonds pay 2.5% per annum interest to the bond holders. The interest is payable twice in a year in the gap of every 6 Months.
For Example: Gold bond SGBAPR28I have been issued in May 2020. The bond pays the interest on face value Rs. 4639 per unit or bond. If an investor is holding this bond, they will get interest on the dates below.
First payment – 13th May of every year = Rs. 1.25%*4639 =Rs.57.98 per bond. Investor has to multiply no of units/bonds for this amount.
Second payment – 13th Nov of every year = Rs. 1.25%*4639=Rs.57.98 per bond. Investor has to multiply no of units/bonds for this amount.
How To Redeem Sovereign Gold Bonds online / offline?
The investor's bank account is promptly credited with the redemption money. Additionally, selling bonds on the secondary market is always an option. But much like with physical gold, capital gains are taxed. Despite the fact that interest generated is taxed, no TDS is taken when interest is paid out or redeemed. Additionally, no capital gains tax is assessed on the investment proceeds at maturity.
SGBs have seen a considerable increase in demand recently, whereas actual gold investments have seen a fall, primarily because the dangers associated with transporting actual gold are reduced and these investments are held in the form of certificates. Additionally, these assets don't incur any storage or transportation expenses. Any SEBI authorised agency may be used to invest in SGBs, and all dealings are done online.
When you are buying top sovereign gold bonds in India, ensure you follow the above-mentioned guidelines. Particularly in India, gold is a product with a social and emotional significance tied to it. It is the most coveted possession anyone would like to own. In India, gold is purchased in order to commemorate every momentous event. However, owning actual gold has some expenses and hazards. With the rise in the price of gold, the risk of theft and exorbitant storage costs rise. Therefore, having gold in the form of gold bonds is always a good alternative. They are distributed in certificate form, which virtually eliminates investment risk. They are viewed as a very alluring investment choice because they have a set interest rate and no capital gains tax on redemption at maturity.
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