By CFP Pankaj Mathpal, Managing Director
Optima Money Managers Pvt. Ltd.
Investment in gold is a tradition in India. For rich or poor, men or women accumulating gold is a goal for everyone. Gold is considered a safe haven and a hedge against inflation. Also, the asset performs well during uncertainties and financial crises when other assets underperform and hence it provides stability to the portfolio. There are various options of investing in gold right from the traditional way of buying bullion and jewelry to investing in a modern way like Gold ETF and Gold bonds. Holding physical gold, however, comes with unique costs and risks. Sovereign gold bond scheme can be considered the best option for investment in gold.
What is Sovereign Gold Bond ?
RBI issues sovereign Gold Bonds (SGBs) on behalf of Government of India. One unit of Sovereign Gold Bond is equivalent to 1-gram Gold of 999-purity. The price of the bond is determined on the basis of a simple average of the closing price of gold published by the India Bullion and Jewelers Association (IBJA) for the last three working days of the week preceding subscription. Profit will depend on the performance of gold in future, but the biggest advantage with SGBs over other gold investment options is that SGBs offer interest at the rate of 2.50 per cent per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor. The interest payment is an extra profit to the investor in addition to the capital appreciation of the bonds that are expected in the long term. Bonds are eligible to be used as collateral for loans from banks, NBFCs and financial institutions
Eligibility
Individuals residing in India, HUFs, trusts, universities and charitable institutions are eligible to invest in SGBs. An individual and a HUF can subscribe to a minimum of one gram and a maximum of 4 kilograms worth of Sovereign Gold Bonds in one financial year. The maximum limit of investment in SGB is 20 Kg for trusts and similar entities. An application can be made in a single or a joint name. Sovereign Gold Bonds can also be bought on behalf of the minor by his/her guardian. Payment can be made through cash up to Rs. 20,000 only. Investment above Rs. 20,000 is allowed through cheque, demand draft or a digital mode like NEFT, RTGS etc. Every application must be accompanied by the Permanent Account Number (PAN).
Lock-in and Maturity
Tenor of the bond is 8 years but early redemption is allowed after five years from the date of issue. The bonds are held in the books of the RBI or in Demat form. Though there is a lock-in period of five years and cannot be redeemed before it in the primary market yet the bonds are tradable in the secondary market if held in Demat form. Investors who want to exit before the end of five years from the date of the issue have an option to sell the bonds in secondary market through their brokers.
Tax benefit
Interest received from bonds is taxable but TDS is not applicable on it. The long term capital gains tax arising on redemption or maturity of SGB to an individual will be exempted. As the bonds are transferable, the indexation benefits will be available to long terms capital gains arising to any person on transfer of bond.
About the current issue
The current issue of Sovereign Gold Bonds 2020-21 Series VII is open for subscription from 12th October to 16th October 2020 and the date of issuance is 20th October 2020. The issue price for the current issue is Rs 5051 per gram. Subscribers applying online will get a discount of Rs 50 on every gram of gold when paying through the digital mode. The effective price in such case is Rs. 5001 per gram.
Bonds are sold through Public and Private Sector Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL) and the authorized stock exchanges either directly or through their agents.
