Imagine a world where your investments are not only secure but also backed by the lustrous assurance of gold. This isn’t a fantasy; it’s a reality offered by Sovereign Gold Bonds (SGBs). A flashback to 50 years ago reveals a global economy where currency notes were as good as gold—literally backed by it. Today, while paper money circulates freely, its credibility wanes, prompting resurgence in gold’s timeless appeal. Enter SGBs, India’s innovative approach to marrying the trust of gold with the flexibility of bonds.
What is Sovereign Gold Bond Scheme?
The Sovereign Gold Bond Scheme, initiated by the Government of India in 2015, is part of the Gold Monetization Scheme. It offers investors an alternative way to own gold without having to purchase physical gold. The scheme is managed by the Reserve Bank of India (RBI) and allows investments in gold in the form of bonds.
Features of Sovereign Gold Bonds
Government Backing: Issued by the Reserve Bank of India and backed by the Government of India.
Gold-Linked Returns: The value of these bonds is tied to the market value of physical gold. The price is determined by averaging the closing prices of 999-purity gold over the three business days before the subscription week, according to the India Bullion and Jewellers Association Ltd (IBJA).
Minimum and Maximum Limits: Individuals and HUFs can invest in amounts ranging from 1 gram to 4 kg of gold, whereas entities like trusts and corporations can invest up to 20 kg.
Interest Income: These bonds offer an annual interest rate of 2.5%, payable semi-annually.
Tenure: The bonds come with an eight-year maturity term, but investors have the flexibility to opt out starting from the fifth year. Additionally, since these bonds are tradable on exchanges, they provide a liquid investment opportunity, allowing investors to sell them prior to maturity.
Dematerialized Form: Held electronically in a Demat account, ensuring safety and convenience.
Advantages of Investing in Sovereign Gold Bonds
Safety: Lowest risk among gold investment options since they are government-backed.
No Physical Storage Needed: Eliminates risks and costs associated with the storage and security of physical gold.
Income through Interest: Unlike physical gold, which does not generate any income, these bonds pay interest of 2.5% semi-annually, enhancing overall returns. When held till maturity (i.e. 8 years), you make 20% of the return on your capital even if the price of the gold remains unchanged.
Tax Benefits: Capital gains from these bonds are not subject to taxes if redeemed after the eighth year (i.e. if held till maturity). Although the interest income from these bonds is taxable according to the investor’s income tax rate, taxes are not deducted at source on this interest income.
High Liquidity: SGBs can be traded on stock exchanges, making them highly liquid compared to physical gold.
Loan Collateral: SGBs can serve as collateral when securing loans. You can typically leverage up to 75% of your SGB’s value to gain financial flexibility. IndiaBonds is pleased to assist you with this process.
Ease of Transaction: Available for purchase online with simple KYC procedures, enhancing convenience for investors.
Investing in Sovereign Gold Bonds with IndiaBonds
IndiaBonds makes it easier for investors to buy Sovereign Gold Bonds online. Invest from the comfort of your living room!
Verify – Do a simple KYC for identification purposes and link your demat and bank accounts.
Online payment – Make your payments using established online payment portals and book your gold bonds!
Conclusion
Throughout the extensive records of history, gold has consistently been recognized as much more than merely a valuable metal. To ancient civilizations, it symbolized power, beauty and even immortality—qualities that have not diminished with time. Gold’s resilience is legendary; it does not corrode, rust, or lose its luster, even when submerged in water for prolonged periods. Its malleability allowed it to be shaped and transported easily, making it a cornerstone of international trade from the Egyptian Empire in 1500 BC to the Roman Empire and beyond. Even as late as the 20th century, nations relied on gold to back their currencies until the shift to paper money post-1976 with the dissolution of the Bretton Woods system.
Today, in a world brimming with financial uncertainties, Sovereign Gold Bonds (SGBs) harness these enduring qualities of gold, combining them with the efficiency and security of modern bond investments. They offer a beacon of stability, making them an exceptionally prudent choice for discerning investors. As traditional investments wane in appeal, SGBs stand out not just for their inherent safety and aesthetic appeal, but also for the practical benefits they bring—ease of investment, freedom from physical storage issues and lucrative tax advantages.
FAQs
Q. What is sovereign gold bond and how it works?
A. Sovereign Gold Bonds represent government-issued securities denominated in grams of gold. They offer an alternative to possessing physical gold. Investors purchase these bonds at the issuing price and receive cash upon their maturity.
Q. Is it good to invest in sovereign gold bond?
A. Certainly, for individuals interested in gold investment but concerned about storage and security, Sovereign Gold Bonds (SGBs) provide a secure and beneficial option. These bonds come with extra perks such as yearly interest payments and tax benefits.
Q. What happens after 8 years of sovereign gold bond?
A. After eight years, the bond reaches maturity and the investor is paid an amount equal to the closing price of gold, plus the final interest payment. This guarantees both the growth and the safety of the investment. The money will be transferred into the bank account that the customer specified at the time of bond purchase.
Q. What are the benefits of sovereign gold bond?
A. The sovereign gold bonds benefits include lower risk as they are backed by the government, no storage issues, additional income through interest, tax benefits, high liquidity and the ability to use them as collateral for loans.
Disclaimer: Investments in debt securities/ municipal debt securities/ securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully.
