Sovereign Gold Bond Schemes ( SGB ) 2020

Sovereign Gold Bonds - A smarter way to buy gold. 

What is Sovereign Gold Bond (SGB)? 

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. The bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India. 

 

Why should I buy SGB rather than physical gold? What are the benefits?
The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form. 

 

The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. 

Photo by Michael Steinberg from Pexels

 

Who can buy? 

Any Indian resident – individuals, Trusts, HUFs, charitable institutions, and universities – can invest in SGB. You may also invest on behalf of a minor. 

Tenure:
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).

What is the rate of interest and how will the interest be paid?
The Bonds bear interest at the rate of 2.50 per cent (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 minimum and maximum limit for investment?
Minimum investment in the Bond shall be 1 gram with a maximum limit of subscription of 4 kg for individuals.

Who are the authorized agencies selling the SGBs?
Bonds are sold through offices or branches of Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices.

When will the customers be issued Holding Certificate?
The customers will be issued Certificate of Holding on the date of issuance of the SGB. Certificate of Holding can be collected from the issuing banks/SHCIL offices/Post Offices/Designated stock exchanges/agents or obtained directly from RBI on email, if email address is provided in the application form.

 

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 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.

Can I apply online? 

Yes. A customer can apply online through the website of the listed scheduled commercial banks. The issue price of the Gold Bonds will be Rs.50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.

 

Tax implications: 

The capital gains tax arising on redemption of SGB to an individual has been exempted. 

Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961).

 

TDS is not applicable on the bond. However, it is the responsibility of the bond holder to comply with the tax laws. 

 

Can I encash the bond anytime I want? Is premature redemption allowed?
Though the tenor of the bond is 8 years, early encashment/redemption of the bond is allowed after fifth year from the date of issue on coupon payment dates. 

 

The bond will be tradable on Exchanges, if held in demat form. It can also be transferred to any other eligible investor. 

How will I get the redemption amount? 

Both interest and redemption proceeds will be credited to the bank account furnished by the customer at the time of buying the bond. 

 

Can I get the bonds in demat form? 

Yes. The bonds can be held in demat account. A specific request for the same must be made in the application form itself. You can trade gold sovereign bonds on stock exchanges, but they have low liquidity. 

 

Some banks accept SGB as collateral/security against secured loans.

When can I buy these bonds?

The date of issuances shall be as per the details given in the calendar below:

  

Gold should be an important part of a diversified investment portfolio because its price increases in response to events that cause the value of paper investments, such as stocks and bonds, to decline. 

Although the price of gold can be volatile in the short term, it has always maintained its value over the long term. Through the years, it has served as a hedge against inflation and the erosion of major currencies, and thus is an investment well worth considering.