SGB Bonds

Sovereign Gold Bonds will be denominated in the multiples of a gram of gold with the minimum unit of 1 gram. The interest for the gold bonds will be 2.50% per annum which is payable semi-annually on the nominal value. The tenure of the bond will be for a period of 8 years with an exit option available in the 5th, 6th and 7th year on the dates of interest payment. The maximum limit of gold which can be subscribed by an individual is 4 kg for, 4 kg for a Hindu-Undivided Family and 20 kg for trusts and other similar entities. If the gold bonds are co-owned, the limit of investment will be 4kg which will be applied to the first applicant only.

The gold bonds will be issued as stocks under the Government Security Act, 2006. The investors will also be given a Holding Certificate for the same.

What are Sovereign Gold Bonds?

Gold Bonds fall under the category of Debt Funds and were introduced as an alternative of purchasing physical gold by the Government of India in November 2015. Sovereign Gold Bonds are government securities and are denominated in grams of gold. Investors will have to pay the issued price in cash and on maturity, the bonds will be redeemed in cash.

Sovereign gold bonds are a secured investment tool due to less susceptibility towards market risks and fluctuations. Since these bonds are issued by the Government, a window of time is decided and set beforehand. During this span of time, the gold bonds are issued under the name of the investors in tranches.

The issuance of gold bonds is usually announced through a press release from the Government every 2 or 3 months with a window of one week when investors can subscribe to these schemes. These Sovereign Gold Bonds have a maturity period of 8 years, but an investor can choose to exit after 5 years is done.

Why should you invest in Gold Bonds?

  • These bonds can also be used as collateral for loans.
  • The payment for the bonds can be made with cash up to a maximum of Rs.20,000 or demand draft, cheque or through e-banking.
  • These bonds are eligible to be converted into DEMAT form.
  • Gold bonds are a form of security as they are issued in the form of the Government of India stock.
  • Interest earned on the gold bonds are taxable as per the provisions of the Income Tax Act, 1961.

How to invest in Sovereign Gold Bonds?

To invest in gold bonds, you can fill in the application form which is provided by issuing banks or from designated post offices. You can also download the application form from the website of the Reserve Bank of India. Many banks such as the State Bank of India and Kotak Mahindra Bank offer the provision of applying for bonds online.

Every applicant must provide their PAN number issued by the Income Tax Department. Without a PAN, one cannot apply for investing in gold bonds.

The gold bonds are sold through the offices or branches of Nationalized Banks, Scheduled Private Banks, Scheduled Foreign Banks, Designated Post Offices, and the Stock Holding Corporation of India.

There is a certain eligibility criterion that must be met to be allotted gold bonds. Applying for it does not ensure that you will be given the bond. You can apply for the gold bonds online on the websites of the listed commercial banks. The issue price of the gold bonds will be Rs.50 per gram less than the nominal value for those investors applying online.

Eligibility for Sovereign Gold Bond Scheme

Individuals who are keen to participate in the Sovereign Gold Bond Scheme need to satisfy the following simple eligibility criteria.

  • Indian resident – This scheme is open only to Indian residents, with the Foreign Exchange Management Act of 1999 formulating the eligibility criteria.
  • Individuals/groups – Individuals, associations, trusts, HUFs, etc. are all eligible to invest in this scheme, provided they are Indian residents. Under the scheme, one can jointly invest in bonds with other eligible members.
  • Minors – This bond can be purchased by guardians or parents on behalf of minors.

Features and Benefits of Sovereign Gold Bond Scheme

Sovereign Gold Bonds has been opted as an investment avenue due to its many features. Some of these features are given below:

  • Gold denomination – These bonds will be issued in multiple weight denominations, starting from 1 gram onwards, providing flexibility in terms of purchasing gold which suits the needs of an individual.
  • Format One has an option to hold these bonds either in paper or demat form, whichever is convenient to an individual.
  • Flexibility – Investments in this scheme are flexible, with one having an option to choose the amount he/she wishes to invest.
  • Interest Investments in this scheme are eligible to earn interest every year.
  • Interest Rate For the gold bonds, the Reserve Bank of India is offering an annual interest rate of 2.50% and is paid twice a year on the nominal value. The returns will be directly linked to the market price of gold.
  • Safety Sovereign gold bonds are known to be safe since they are government securities and do not carry the risk which having physical gold carries such as the possibility of theft.
  • Purity Since it is backed by the government, one is assured of purity of gold when they invest in the scheme.
  • Maturity This scheme has a maturity period of 8 years.
  • Gift/transfer Investors can choose to gift or transfer these bonds to others, provided they meet the necessary eligibility criteria.
  • Premature withdrawal Premature encashment of these bonds is allowed after 5 years of issue.
  • Loan collateral – Investors can use these bonds as collateral against loans.
  • Application The application process is simple and fast, with banks and post offices permitted to provide this service.
  • Payment modes One can opt to purchase these bonds through multiple payment modes, with cheques, cash, DDs or electronic transfer accepted.
  • Nomination This scheme has a provision for nomination, adhering to the rules of the land.
  • Tradable Investors can trade these bonds on stock exchanges, subject to notifications of the Reserve Bank of India.
  • Value: The value of these gold bonds are assessed in the multiples of grams and the basic unit which can be purchased is 1 gram and the maximum an investor can purchase is 4 kg of gold per investor who can be an individual or a Hindu Undivided Family. For trusts and universities, 20 kg of gold can be purchased.
  • Eligibility Criteria: Unlike other kinds of investments any Indian resident can invest in Sovereign Gold Bonds. Individuals, HUFs, trusts, charitable institutions, universities, etc.
  • Interest Rate: For the gold bonds, the Reserve Bank of India is offering an annual interest rate of 2.50% and is paid twice a year on the nominal value. The returns will be directly linked to the market price of gold.
  • Tenure: The maturity period of gold bonds is 8 years. However, investors can opt to exit the bond after the fifth year on the date of interest payouts only.
  • Documentation: To purchase gold bonds, you will require a copy of various documents which are needed for the KYC process such as the Driving License, Passport, Voter ID or PAN Card.
  • Issuance of the bonds: The gold bonds are only issued by the Government of India Stocks on behalf of the Reserve Bank of India as per the GS Act, 2006. Once a person invests in gold bonds, he or she will be given a Holding Certificate which can be converted to a Demat form as well.
  • Tax: The interest which is received from gold bonds is taxable under the IT Act, 1961. During the redemption of gold bonds, the capital tax gains applicable to the investor is exempted from tax. Apart from this, indexation benefits are provided to an investor for the long-term capital gains which are generated.
  • Redemption Price: The redemption price will be in rupees and is based on the average of the closing price of the metal of 999 purity on three previous days.