Investing in Gold Made Easy: Understanding Sovereign Gold Bonds

Sovereign Gold Bonds, also known as SGB, were launched by the Government of India in November 2015 under the Gold Monetization Scheme. Under this scheme, the issues were made open for subscription in tranches by the RBI in consultation with the GOI. Sovereign Gold Bonds, as the name suggests, are bonds based on the gold market backed by the Government of India at fixed interest rates. Basically, these bonds are issued by the RBI on behalf of the government. Gold bonds are announced through a press release from the government, usually every 2 or 3 months, with a window of one week when investors can subscribe to these schemes. These sovereign gold bonds have a maturity period of 8 years, but an investor can choose to exit, redeem, or encash them after 5 years. Alternatively, they can sell the bonds in the secondary market if they are listed by the date specified by the RBI. Since SGBs are denominated in grams of gold, the price of each gram is linked to the value of gold with 999 purity. The gold bonds are restricted for sale to resident individuals, HUFs, trusts, universities, and charitable institutions. How do I invest in the same? You can place an order for a sovereign gold bond from a Findoc Investmart Pvt. Ltd. account. Also, the SGBs will be sold through Scheduled Commercial Banks, Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, and recognized stock exchanges (National Stock Exchange of India Limited and Bombay Stock Exchange Limited). Once the order is placed, you will receive a Certificate of Holding on the date of the issuance of SGB via email. The tenure for the same being 8 years, on maturity, the redemption price shall be based on the simple average of the closing price of gold of 999 purity of the previous 3 business days as published by the India Bullion and Jewellers Association Limited (IBJA). Redemption proceeds and interest are credited to the bank account. STCG (short-term capital gain), if held for less than 36 months, would be as per the income slab. LTCG (long-term capital gain), if held for more than 36 months, would be 20% with indexation benefits. There is an investment limit on buying the SGB’s. The minimum permissible investment limit is one gram of gold. The maximum limit of subscription is 4 kg for individuals, 4 kg for HUF, and 20 kg for trusts and similar entities per fiscal year (April–March). Benefits of investing in gold bonds: The capital gain earned from an SGB investment will be tax-exempt if one holds it for 8 years, i.e., its maturity. The investors will be offered a fixed interest rate of 2.50 percent per annum, payable semi-annually on the nominal value along with capital appreciation. This interest payment is divided into two parts and is paid every six months to the investor. Irrespective of whether the cost of gold rises or falls, you are guaranteed to receive the interest. The risk associated with these bonds is minimal since they are backed by the government. SGB is affordable as well, since the investment amount is as low as 1 gram of gold. Low maintenance costs Since no physical locker charges need to be paid, you can save it digitally, eliminating several risks associated with holding physical gold and manually visiting to withdraw it. Extremely convenient to carry, the SGB certificate is provided via email, which is easy to access. The issue price of the SGBs is less than Rs 50 per gram for the investors who subscribe online and pay through digital mode; hence, it is more lucrative to buy them than physical gold. The gold bonds can also be used as collateral for loans. The loan-to-value (LTV) ratio will be as applicable to any ordinary gold loan as mandated by the RBI from time to time. Cons: Long-term holding period, i.e., a maturity period of 8 years, with an exit option after 5 years. These SGB’s are traded on the secondary market, but they have a low trading volume. The gold bonds are less exposed to people; hence, one might find it difficult to stay updated with regards to tranche dates being launched. There may be a slight risk of capital loss if the market price of gold declines. We can conclude by stating that these bonds provide one of the safest avenues for SGB investment since they are backed by the RBI. Since its launch date in November 2015, the scheme has been immensely popular, with a total investment of approximately 28 tons of gold worth Rs 13,000 crore, which indicates its presence among people. And the best of all is that it is tax-free on maturity. Happy Investing.Sovereign Gold Bonds, also known as SGB, were launched by the Government of India in November 2015 under the Gold Monetization Scheme. Under this scheme, the issues were made open for subscription in tranches by the RBI in consultation with the GOI. Sovereign Gold Bonds, as the name suggests, are bonds based on the gold market backed by the Government of India at fixed interest rates. Basically, these bonds are issued by the RBI on behalf of the government. Gold bonds are announced through a press release from the government, usually every 2 or 3 months, with a window of one week when investors can subscribe to these schemes. These sovereign gold bonds have a maturity period of 8 years, but an investor can choose to exit, redeem, or encash them after 5 years. Alternatively, they can sell the bonds in the secondary market if they are listed by the date specified by the RBI. Since SGBs are denominated in grams of gold, the price of each gram is linked to the value of gold with 999 purity. The gold bonds are restricted for sale to resident individuals, HUFs, trusts, universities, and charitable institutions. How do I invest in the same? You can place an order for a sovereign gold bond from a Findoc Investmart Pvt. Ltd. account. Also, the SGBs will be sold through Scheduled Commercial Banks, Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, and recognized stock exchanges (National Stock Exchange of India Limited and Bombay Stock Exchange Limited). Once the order is placed, you will receive a Certificate of Holding on the date of the issuance of SGB via email. The tenure for the same being 8 years, on maturity, the redemption price shall be based on the simple average of the closing price of gold of 999 purity of the previous 3 business days as published by the India Bullion and Jewellers Association Limited (IBJA). Redemption proceeds and interest are credited to the bank account. STCG (short-term capital gain), if held for less than 36 months, would be as per the income slab. LTCG (long-term capital gain), if held for more than 36 months, would be 20% with indexation benefits. There is an investment limit on buying the SGB’s. The minimum permissible investment limit is one gram of gold. The maximum limit of subscription is 4 kg for individuals, 4 kg for HUF, and 20 kg for trusts and similar entities per fiscal year (April–March). Benefits of investing in gold bonds: The capital gain earned from an SGB investment will be tax-exempt if one holds it for 8 years, i.e., its maturity. The investors will be offered a fixed interest rate of 2.50 percent per annum, payable semi-annually on the nominal value along with capital appreciation. This interest payment is divided into two parts and is paid every six months to the investor. Irrespective of whether the cost of gold rises or falls, you are guaranteed to receive the interest. The risk associated with these bonds is minimal since they are backed by the government. SGB is affordable as well, since the investment amount is as low as 1 gram of gold. Low maintenance costs Since no physical locker charges need to be paid, you can save it digitally, eliminating several risks associated with holding physical gold and manually visiting to withdraw it. Extremely convenient to carry, the SGB certificate is provided via email, which is easy to access. The issue price of the SGBs is less than Rs 50 per gram for the investors who subscribe online and pay through digital mode; hence, it is more lucrative to buy them than physical gold. The gold bonds can also be used as collateral for loans. The loan-to-value (LTV) ratio will be as applicable to any ordinary gold loan as mandated by the RBI from time to time. Cons: long-term holding period, i.e., a maturity period of 8 years, with an exit option after 5 years. These SGB’s are traded on the secondary market, but they have a low trading volume. The gold bonds are less exposed to people; hence, one might find it difficult to stay updated with regards to tranche dates being launched. There may be a slight risk of capital loss if the market price of gold declines. We can conclude by stating that these bonds provide one of the safest avenues for SGB investment since they are backed by the RBI. Since its launch date in November 2015, the scheme has been immensely popular, with a total investment of approximately 28 tons of gold worth Rs 13,000 crore, which indicates its presence among people. And the best of all is that it is tax-free on maturity.