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Sovereign Gold Bonds (SGB)


Sovereign Gold Bonds (SGB) are government securities issued by Reserve bank of India on the behalf of GOI. SGB units are denominated in grams of gold. Each unit is equivalent to 1 gram of gold.

How does Sovereign Gold Bonds (SGB) work ?

You pay for the bonds in cash at issue price and bonds can be redeemed in cash on maturity. Tenor of SGB will be eight years.Reserve bank will notify issue price at least two days before the issue opens.

The unit bond price on maturity will be calculated as simple average of previous week’s (Monday-Friday) price of closing gold price published by the India Bullion and Jewellers Association (IBJA).On maturity date value of gold bonds and last lot of interest will be credited to your account.

You will earn 2.50% annual interest on your investment in SGB, and this will be credited to your bank account on half yearly basis.

Buyers of SGB will be issued Certificate of Holding on the date of issuance of the SGB. Investors can apply for the bonds through Banks , Post Offices and SHCIL.

Minimum and Maximum limit on Sovereign Gold Bonds (SGB)

You have to buy minimum 1 units i.e 1 gms of gold and multiples of 1 thereafter .Maximum one can purchase 500 gms in one financial year.

Benefits of Sovereign Gold Bonds (SGB)

Most important feature is that you earn 2.50% interest on your gold investment, which is not available in other products like Gold ETF, Gold mutual funds or buying physical gold.

In Gold ETF and Gold mutual funds you have to pay fund management charges, while making charge is applicable on gold jewellery and coins. These charges are no applicable on SGB.

Others benefits are same like Gold ETF and Gold mutual funds that you do not have to buy physical gold. Issues related to purity, risk and cost of storage is eliminated. You can hold the gold in demat form.

You will get Rs 50 discount per gram if you apply online.

Features of Sovereign Gold Bonds (SGB)

  • Resident of india are allowed to invest in SGB. Individuals, HUFs, trusts, universities, charitable institutions, etc. are eligible for investment in SGB.

  • Joint holding and application for minor on behalf by guardian is allowed.

  • SGB can be used as collateral for loans.

  • Nomination facility is available on SGB.

  • The bond can be gifted/transferable to anybody provided limit of 500 gms per financial year is met.

Tax treatment on Sovereign Gold Bonds (SGB)

Interest earned on the SGB will be added to income and taxed as per your applicable tax.Individuals are exempt from capital gain tax if bonds are held till maturity date, but interest will be taxed.

For early redemption, capital gains tax treatment will be the same as that for physical gold.

Tax treatment on gold is as listed below

No TDS is applicable on SGB. Investment in gold will qualify as long term capital gain if you hold for minimum 36 months. Long term capital gain in gold will be taxed at 20% with indexation benefit.

If you sell gold without holding it for 36 months or more, then the gains will be treated as short term capital gain. Short term capital gain on gold investment will be added to annual income of that financial year and taxed as per applicable tax slab.

Premature withdrawal of Sovereign Gold Bonds (SGB)

Tenor of the SGB is for a minimum of 8 years but exit option will available in 5th, 6th and 7th years on date of interest payment.Investor has to apply at least one day before date of interest payment for redemption. Application can be made 30 days before date of interest payment.You can exit only on three particular interest payment dates before maturity date,so premature withdrawal is not that flexible.

Trading of sovereign Gold Bonds (SGB) is allowed on stock exchange if held in demat format.Bond can be transferred anytime from one investor to another before maturity date.

Our Opinion

Your gold investment in Sovereign Gold Bonds (SGB) will appreciate in value same as physical gold and also earn 2.75% interest.Better to earn 2.50% interest than have gold gathering dust in your locker.

Invest in Sovereign Gold Bonds (SGB) , only if you long term investment horizon as trading and premature withdrawal options are currently limited. Risk associated with investment in sovereign Gold Bonds (SGB) is only fluctuation in market prices of gold,which is common with investment in other gold through other means.

One might find difference between gold bond issue price and market price of gold on date of investment,but if one is investing from long term point of view then it should not make a great difference.

Only downside is that on maturity you will get gold value and not physical gold.

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