Sovereign Gold Bond Scheme is introduced by Govt. of India to help people own and invest in gold without physically buying or possessing it. SGBs are government securities, issued by Reserve Bank of India, which investors can buy and redeem in cash. SGBs are denominated in grams of Gold (1 unit=1 gram).
How does the Sovereign Gold Bond Scheme work?
Govt. of India will issue SGBs through banks and post offices. Public can buy these bonds in denomination of gold during the period of issue. Owning a gold bond of certain weight is same as owning that quantity of gold. Investors can redeem their bonds after 8 years or prematurely after 5 years. The amount of initial investment and final earnings will depend on the market rate of gold. Investors will also be paid interest for their investment, semi-annually.
Who are eligible to invest in Sovereign Gold Bonds?
All Indian citizens and organizations like trusts, universities and charitable institutions run by Indian citizens are eligible for investing in SGBs. Hindu undivided families are also eligible.
Is there any limit for investing in the Sovereign Gold Bond Scheme?
Yes. Minimum investment required is 1 gram of gold and the maximum investment allowed for individuals and Hindu undivided families is 4 kg of gold. Maximum investment limit for organizations is 20 kg of gold.
Who are authorized to sell Sovereign Gold Bonds?
Nationalized banks, scheduled private and foreign banks, designated post offices, Stock Holding Corporation of India Ltd. and authorized stock exchanges and their agents are authorized to sell SGBs.
What are the risks of investing in Sovereign Gold Bonds?
If the market price of gold declines, investors will be at risk of capital loss. Redemption before maturity can also cause capital loss. However, there will not be any capital loss in terms of the units of gold purchased.
How long is the tenor of Sovereign Gold Bonds?
The tenor of SGBs is for a period of 8 years with exit option from 5th year onwards from the date of issue.
What are the modes of payment for investing in the Sovereign Gold Bond scheme?
Investment can be done with payment as cash (upto Rs. 20,000) or cheque or demand draft or as electronic fund transfer.
Is any interest payable on the Sovereign Gold Bond scheme?
SGBs pay 2.50% interest annually, which will be credited to the investor’s bank account directly. Interest is paid semi-annually on your initial investment.
Are Sovereign Gold Bonds issued all year round?
SGBs are not issued all year round. Government of India will open the issue of SGBs typically in every 2-3 months and will remain open for about a week for purchase.
What are the benefits of buying Sovereign Gold Bonds?
- No need to buy or hold gold in the physical form.
- There are no safety concerns or cost of storage involved.
- Investors can save on making charges and price fall in terms of outdated designs
- Bonds can be kept in the demat form
- SGBs are tradable on stock exchanges
- Bonds can be gifted or transferred to any other eligible investor.
- The quantity of purchased gold remains the same.
- Investor gets ongoing market price of gold at the time of redemption.
- Own gold and also earn assured interest of 2.50% per annum on the investment.
- SGBs are eligible to be used as collateral for loans
- Investors can apply online for bonds.
- No TDS applicable
- No Capital Gains Tax on redemption
- Asset appreciation opportunity
- SGBs are issued by RBI on behalf of Government of India.
What are the drawbacks of Sovereign Gold Bond scheme?
- Purchase of SGBs is restricted to Indian citizens only.
- SGBs are not issued all year round.
- Minimum lock-in period of 5 years.
- Redemption before maturity can cause capital loss.
- Decline in market price of gold will cause capital loss.