What Is RBI Sovereign Gold Bond (SGB)? Gold Rates Are Falling: Why Should You Buy?

Sovereign Gold Bonds (SGBs) are issued by the Reserve Bank of India (RBI) on behalf of the union government. These are known as the government securities denominated in gold, which are great substitutes for physical gold. As an investor you have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The maturity period of SGB is 8 years. However, early encashment/redemption of the bond will be allowed after the 5th year from the date of issue.

Unique benefits of SGBs

The most significant of buying SGBs is the interest rates paid on the securities. The government will pay interest at the rate of 2.50% per annum on the amount of initial investment. The interest amount will be credited semi-annually to the bank account of the investor. Additionally, the last interest amount will be paid on the bond's maturity along with the principal investment amount.

Additionally, the quantity of gold the investor paying for will be of high purity of 999 purity, but it will be accessible without any storage cost, secured by the government. The bonds will be in Demat form eliminating the risk of loss of scrip, recorded by the RBI. SGB is also free from making charges and low purity in the case of gold in jewellery form.

How To Invest In SGBs?

The application form for SGBs will be provided by the issuing banks/Stock Holding Corporation of India Ltd. (SHCIL) offices/designated Post Offices/the authorized stock exchanges either directly or through their agents. Additionally, the form can be downloaded from the RBI's website. An investor will have only one unique investor Id linked to any of the prescribed identification documents to hold SGB. For this purpose, an investor must have a PAN card.

Eligibility criteria

Indian citizens, Hindu Undivided Family (HUF), trusts, universities, and charitable institutions are eligible to buy SGBs. Joint holding of SGB is allowed, and a guardian can buy SGBs for a minor. A customer can apply online to avail of a rebate of Rs. 50 per gram, than the nominal value. The bonds can also be transferred to any other eligible investor.

The minimum and maximum limit for SGB investment

The bonds are issued in denominations of one gram of gold and in multiples thereof, the minimum investment in the Bond shall be one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for HUF, and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (April - March), RBI informs.

How is the price of SGBs are fixed?

The nominal value of SGBs will be in INR fixed depending on a simple average of the closing price of gold of 999 purity, published by the India Bullion and Jewelers Association (IBJA) Limited, for the last 3 business days of the week preceding the subscription period. The price of gold for the relevant tranche is published on the RBI website 2 days before the issue opens.

Taxation

"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. The indexation benefits will be provided to long terms capital gains arising to any person on transfer of bond," RBI informs.