Sovereign Gold Bond: Your money will double in this government scheme

Sovereign Gold Bond: The Sovereign Gold Bond (SGB) scheme is an initiative by the Government of India, launched in November 2015, to offer an alternative to holding physical gold. It aims to reduce the demand for physical gold imports and manage the trade deficit.

Details Sovereign Gold Bond scheme:

Government Securities: SGBs are government securities denominated in grams of gold. They are essentially paper gold. The Reserve Bank of India (RBI) issues these bonds on behalf of the Government of India.

Substitute for Physical Gold: They offer a way to invest in gold without the risks and costs associated with holding physical gold (like storage, purity concerns, and making charges).

Key Features and How it Works:

Denomination: The bonds are denominated in multiples of grams of gold, with a basic unit of 1 gram.

Issue Price: The price is fixed in Indian Rupees based on the simple average of the closing price of 999 purity gold, published by the India Bullion and Jewellers Association Limited (IBJA) for the last 3 working days of the week preceding the subscription period. A discount of Rs 50 per gram is usually offered for online subscriptions and digital payments.

Tenure: The bond has a tenure of 8 years.

Exit Option: Investors have an exit option after the 5th year, exercisable on the interest payment dates.

Interest Rate: A fixed interest rate of 2.50% per annum (on the initial investment amount) is paid semi-annually to the investor’s bank account.

Redemption:

On Maturity: On maturity (after 8 years), the redemption price is based on the simple average of the closing price of 999 purity gold for the last 3 business days preceding the date of repayment, as published by IBJA. The redemption is made in cash.

Premature Redemption: If redeemed prematurely (after 5 years), the redemption price is also linked to the prevailing gold price at that time.

Investment Limits:

Minimum: 1 gram of gold.

Maximum: 4 kg for individuals and Hindu Undivided Families (HUF) per fiscal year (April-March), and 20 kg for trusts and similar entities. This annual ceiling includes bonds subscribed in different tranches and those purchased from the secondary market.

Eligibility: Resident Indian individuals, HUFs, trusts, universities, and charitable institutions are eligible to invest.

Mode of Holding: SGBs can be held in physical form (as a holding certificate) or in dematerialized (Demat) form in a demat account.

Tradability: Bonds held in Demat form are tradable on stock exchanges.

Collateral for Loans: SGBs can be used as collateral for loans from banks and financial institutions.

Benefits of Investing in SGBs:

Safety: Government-backed, making them a very safe investment with zero risk of default.

No Storage Cost/Purity Concerns: Eliminates the hassles and costs of storing physical gold, and there are no worries about the purity of the gold.

Dual Returns: Investors get two streams of returns:

Fixed Interest: A guaranteed 2.50% annual interest.

Capital Appreciation: Potential for capital gains if the price of gold increases over the investment period.

Tax Efficiency:

Capital gains arising on redemption of SGBs to an individual investor are exempt from capital gains tax if held till maturity.

Indexation benefits are provided for long-term capital gains if the bond is transferred before maturity.

TDS (Tax Deducted at Source) is not applicable on the interest, though the interest income is taxable as per the investor’s income tax slab.

Liquidity: Can be traded on stock exchanges if held in Demat form, and also offers an early exit option after 5 years.

How to Apply:

Investors can apply for SGBs through:

Scheduled Commercial Banks (both offline and online/internet banking)
Stock Holding Corporation of India Limited (SHCIL)

Designated Post Offices:

Recognized stock exchanges like NSE and BSE (either directly or through agents)
The SGB scheme is a popular and secure investment option for those looking to invest in gold without the drawbacks of physical gold, while also earning a fixed interest.

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