Sovereign Gold Bond Scheme: An Alternative to Investing in Physical Gold

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Gold is every Indian household's favourite investment. Investing in this yellow metal is considered a more stable and promising while allowing you to buy only as much as you can.

But, owning physical gold has its own risks like theft and storage. You will also have to pay your jeweller the extra "making charges."

Considering these factors, the government has come up with a scheme to help citizens own gold in dematerialized form. This was intended to help the funds flow into the economy and reduce demands for physical gold through imports.

The Reserve bank of India, on behalf of the government, wanted to give Indians an alternative to owning physical gold. Thus came the Sovereign Gold Bond Scheme.

What is Sovereign Gold Bond Scheme?

The Sovereign Gold Bond (SGB) Scheme is a government security that measured in the units of gold. It means that when you own a certain weight of gold through this scheme, you will be owning the same value in the form of a bond.

This allows you to reap the benefits of gold rates as well as interest earned on the bonds at the time of their maturity.

These are issued by the Reserve Bank of India (RBI) and their issue is announced in advance through notifications.

These can be held in demat form.

Features

  • The Sovereign Gold Bonds are issued in different weight denominations. It starts with as low as 1 gram. The maximum amount subscribed cannot be more than 4 kilograms for individuals and HUF per financial year.
  • Its maturity period is 8 years.
  • Premature encashment of the scheme is allowed after 5 years of issue.
  • It can be used a collateral against loans.
  • The issue and redemption price will be in Indian rupees and set on the basis of simple average of closing price of gold of 999 purity published by India Bullion and Jewellers Association for last three business days if the week. The issue price is listed on RBI's website two days before the issue.

Who can buy SGB?

Individuals, HUFs, trusts, universities, charitable institutions, etc who are residents of India can invest in this scheme. Parents or guardians can also purchase them on behalf of minors.

How to buy SGB?

You will need to pay the issue price of the Sovereign Gold Bond in cash (upto Rs 20,000), cheque, bonds, DD or electronic transfer. The amount to be invested is flexible. You can choose how much you want to invest.

The issue price will be Rs 50 per gram less than nominal value for those who apply online and pay digitally.

 

Interest

These bonds bare a 2.50% fixed interest rate per annum on the initial invested amount. This interest in credited semi-annually to the investor's bank account. The last interest will be given with the principal amount on maturity.

Where to buy Sovereign Gold Bond?

The Sovereign Gold Bonds are sold through scheduled commercial banks (excluding RRBs), SHCIL, designated Post Offices, National Stock Exchange of India Ltd. & Bombay Stock Exchange Ltd either directly or through their agents.

You can buy through their websites and branches.

Tax benefits

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.

Source: rbi.org.in

Read more about: gold, sovereign gold bond
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