The Buyt Desk
Sovereign Gold Bonds are issued by the Reserve Bank of India to retail investors. It is the newest way of holding e-gold. There is no exchange of physical gold. Sovereign gold bonds are held in either a Demat account or through a paper bond.
For the financial year 2022-23, RBI issued the first tranche of SGB on June 20, 2022. It was open for buying the bond for 4 days i.e until June 24, 2022. The price was fixed at Rs 5,091 per gram of gold. And as per the government decision, a discount of Rs 50 per gram was given to the online investors and to investors who paid digitally. The second tranche will be available from August 22, 2022, till August 26, 2022.
What investors should know about the SGB scheme?
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Who can invest in SGB – The gold bonds under the SGB scheme can be bought by Resident individuals, Hindu Undivided Families (HUFs), universities, trusts and charitable institutions. Even individuals on behalf of a minor child or jointly with another person can buy the bonds.
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Price per gram – The gold bond’s nominal value is proportional to the simple average closing price of 3 days of 999 purity gold. This value is arrived at by the India Bullion and Jewelers Association Ltd (IBJA). The final three business days of the week prior to the subscription period are considered for the calculation of the price per gram of gold.
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Interest SGBs offers – SGB offers fixed interest of 2.50 % per annum to the investors. Interest is paid twice annually, every 6 months on the nominal value. The interest paid is apart from the rise in the value of gold at the time of redemption.
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Tenure of SGB – The tenure of SGB is eight years. But premature redemption after the fifth year is possible.
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Buying SGB – The gold bonds are sold through commercial banks, Clearing Corporation of India Limited (CCIL), Stock Holding Corporation of India Limited (SHCIL), National Stock Exchange and BSE and designated post offices (as may be notified). Bonds can either be purchased directly or through agents.
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SGB payment – The SGBs can be brought by paying in cash (only up to Rs.20000/-), demand draft, cheque or electronic banking.
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Buying Size – Investment will be in multiples of one gram of gold. As per the rules, the minimum investment will be one gram and the maximum can be up to 4 kg for individuals, 4 Kg for HUF and 20 kg for trusts and similar entities per financial year. The limit is calculated considering the bonds brought across the tranches in that financial year including the ones purchased from the secondary market.
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Tradability – The SGBs are eligible for trading.
Benefits of investing in SBG
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Safe investment – SBG is a sovereign guarantee as they are issued by the Reserve Bank of India (RBI) on behalf of the government. They are always a safe bet.
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Add on interest – The gold price keeps increasing. Similar to physical gold, even the price of gold in bonds keeps increasing. Apart from this increase in price, one will also get 2.5 % fixed interest annually on the investment. So the investment is growing and also paying you interest every 6 months.
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Tax – There is tax exemption to an individual on the capital gains tax on redemption of SGB. To any person transferring the SGB, on long-term capital gains, the indexation advantage is provided. But the interest on SGBs is taxable as per the provision of the Income Tax Act, 1961, (43 of 1961).
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No Cost for the safety of gold – SGBs have no holding or storage cost, unlike digital gold.
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Collateral for Loans – The SGBs help you in liquidity as they can be used as collateral for loans. It is similar to gold loans. Even the loan-to-value (LTV) ratio is equal to ordinary gold loans as directed by the Reserve Bank from time to time.
Summing up
All investors who want to buy physical gold should buy gold bonds instead. As discussed above, they are a great credit-risk-free form of investment. Unlike physical gold and digital gold, SGB has no making charges or annual fees and also has indexation benefits. SBG comes with storage cost-free and charge-free gold investment. SGBs are completely safe, as the RBI is the guarantor. The best deal is 2.5% fixed interest annually earned by the investment. So, one should definitely go for sovereign gold bonds.
