Sovereign Gold Bond Scheme: SGB or Sovereign Gold Bond is issued by the Reserve Bank of India on behalf of the Government of India. This scheme is a part of the central government’s market borrowing program. In this post, I’ll discuss SGB in detail.
What is Sovereign Gold Bond (SGB)?
SGB’s are one type of government securities that can be used as physical gold alternatives. Through this bond government raises money from the investors in cash and investors also redeemed it is cash.
Features of Sovereign Gold Bonds
- Who is eligible to invest in the SGBs? – Any Indian resident – individuals, Trusts, HUFs, charitable institutions, and universities – can invest in SGB. You may also invest on behalf of a minor. You also buy it jointly.
- What are the minimum and maximum limit for investment? – The value of the bonds is assessed in multiples of grams of gold, wherein the basic unit is 1 gram. The minimum initial investment is 1 gram of gold, and the upper limit is 4 kgs of gold per investor (individual and HUF). For entities such as trusts and universities, 20 kgs of gold are permissible.
- What are the Know-Your-Customer (KYC) norms? – You must have a PAN, issued by the Income-tax Department.
- What is the rate of interest and how will the interest be paid? – The Bonds bear interest at the rate of 2.50 percent (fixed rate) per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.
- What is the tenure of SGB? – The maturity period of the bond is eight years. However, you can choose to exit the bond from the fifth year (only on interest payout dates).
- At what price the bonds are sold? – The nominal value of Gold Bonds shall be in Indian Rupees fixed on the basis of simple average of the closing price of gold of 999 purity, published by the India Bullion and Jewelers Association Limited, for the last 3 business days of the week preceding the subscription period.
- Where can you buy SGB? – Bonds are sold through offices or branches of Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL), and the authorized stock exchanges either directly or through their agents.
What are the benefits of SGBs?
So why you should invest in Sovereign Gold Bond (SGB), here are some advantages of SGBs –
- The quantity of gold you buy is protected.
- No fear of loss,
- No making charges or maintenance charges,
- Pure 99.9% gold,
- Earn Interest: 2.50% assured interest per annum on the issue price,
- No TDS applicable on interest,
- Indexation benefit if the bond is transferred before maturity
- Capital gains tax exempted on redemption.
- Available in DEMAT and paper form.
- You can trade gold sovereign bonds on stock exchanges within a specific date (at the discretion of the issuer). For instance, after completing five years of investment, you can trade them on the National Stock Exchange or Bombay Stock Exchange, among others.
- Loan against SGBs: Some bank offers loan against SGBs, so if you need money without selling SGBs you can take a loan.
As we discuss advantages here are some disadvantages also. So, what are they –
- Are there any risks in investing in SGBs? – There may be a risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold that he/she has paid for.
Comparing SGB with Physical gold & Gold ETFs
| Particulars | Physical Gold | Gold ETF | Sovereign Gold Bond |
| Returns/earnings | Lower than the real return on gold due to making charges | Less than actual return on gold | More than actual return on gold |
| Safety | Risk of theft, wear/tear | High | High |
| Purity | The purity of gold always remains a question | High as it is in electronic form | High as it is in electronic form |
| Gains | LTCG after three years | Long-term capital gain post after three years | LTCG post three years. (No capital gain tax if redeemed after maturity) |
| As loan collateral | Accepted | Not accepted | Accepted |
| Tradability or exit formalities | Restrictive | Tradable on Stock Exchange | Can be traded and redeemed from the 5th year with the government |
| Storage expenditures | High | Minimal | Minimal |
Sovereign Gold Bond Dates
| S. No. | Tranche | Date of Subscription | Date of Issuance |
| 1. | 2020-21 Series I | April 20-24, 2020 | April 28, 2020 |
| 2. | 2020-21 Series II | May 11-15, 2020 | May 19, 2020 |
| 3. | 2020-21 Series III | June 08-12, 2020 | June 16, 2020 |
| 4. | 2020-21 Series IV | July 06-10, 2020 | July 14, 2020 |
| 5. | 2020-21 Series V | August 03-07, 2020 | August 11, 2020 |
| 6. | 2020-21 Series VI | Aug.31-Sept.04, 2020 | September 08, 2020 |
Bottomline
Sovereign Gold Bond (SGB) is one of the types of investment, so if you want to invest in gold and this bond suits you, you can try it definitely.