Sovereign Gold Bonds are kind of Government bonds that are issued (by the RBI on behalf of the Government) on payment of rupees but denominated in grams of gold. It allows an individual to invest in gold without the strain of safekeeping their physical asset. The value of these bonds depends on the value of gold. Sovereign Gold Bonds act as a secure investment tool among individuals, as gold prices are less susceptible to market fluctuations.
Key Features of Sovereign Gold Bond
All resident individuals, HUFs, registered entities like a trust, universities, charitable institutions, societies and clubs, partnership firms and private or public limited companies can buy gold bonds. However, Non-Resident Indians (NRIs) and Foreign Institutions/Entities will not be allowed to hold gold bonds.
Government Guarantee, No Chance of Default
This feature is very important for conservative investors. The Gold bond issued by the government of India is more secured. Bond carry sovereign guarantee both on redemption amount and on the interest.
The bonds will be denominated in units of one gram of gold and multiples thereof.
There are no such charges applicable in Sovereign Gold Bond Scheme.
A minimum permissible investment of 1 gram of gold has to be made, while the maximum limit is equal to the value of 4kg of gold for Hindu Undivided Family (HUF). For corporations and trusts, the upper limit is set at 20kg.
Quantity of subscription
Fixed interest along with capital gains
The Gold bond is the method of gold investment which offers you assured interest along with the price rise benefit. The investors will be paid a fixed interest rate of 2.5% per annum (notified by RBI) half- yearly to investors.
Fixed Tenor & Premature Withdrawal
The tenor of the Gold bond will be for a period of 8 years, with premature withdrawal from the 5th year onwards. Investors who are willing to cash-in their investment will be permissible only after a mandatory holding period of 5 years. This pay-out benefit will be processed on the interest payment dates.
Benefits of Investing in a Sovereign Gold Bond
Safe & hassle Free
The Sovereign Gold Bond (SGB) offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Any risk associated with such investments can be attributed to market fluctuations, causing volatility in gold prices.
Tax Treatment & Indexation benefit
The capital gain tax arising on redemption of Sovereign Gold Bond to an individual has been exempted. If you transfer your bond before maturity, then you can get indexation benefits.There is also a sovereign guarantee on the redemption money as well as on the interest earned.
Sovereign Gold Bond returns are worth as the price tends to rise in the long term. During times of stock market turmoil, investors tend to shift towards gold, as it has the potential to hold its value even during critical situations.
The growth rate of such assets is considerably higher.Hence, individuals can enjoy growth in the real value of their investment portfolio, allowing them to accumulate wealth over time.
Assurance of Purity
Gold Bond prices are linked to price of gold of 999 purity (24 carat) published by IBJA.
Loan against Gold Bond
The Gold Bond gives a unique facility. Investors can take a loan against the gold bond. Up to 75% of the market value of such bonds can be availed as a loan from any scheduled financial institution, as stipulated by the RBI’s LTV regulations.
Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.
Bonds shall be transferable by execution of an instrument of transfer in accordance with the provisions of the Government Securities Act.
The redemption price must be fixed in Indian rupees, based on an average of the closing price of gold of 999 purity in three business days from the date of re-payment.
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– Satarupa Dutta (Data: Debraj Guha Thakurta)