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A guide to understanding Sovereign Gold Bonds (SGBs)

18 Dec, 2023

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What is Sovereign Gold Bond (SGB)?

Sovereign Gold Bonds (SGBs) are financial instruments issued by the Government of India, allowing investors to invest in gold in a non-physical form. These bonds represent a secure and efficient way of owning gold without the need for holding the physical metal.

Who is the issuer of SGBs?

The issuer of Sovereign Gold Bonds is the Government of India through the Reserve Bank of India (RBI).

Who is eligible to invest in the SGBs?

Individuals, HUFs (Hindu Undivided Families), Trusts, Universities, and Charitable Institutions are eligible to invest in SGBs.

Why should I buy SGBonds rather than physical gold like jewelry? 

Investing in SGBs offers several advantages over physical gold. These include earning interest (unlike physical gold), exemption from capital gains tax on redemption, no storage hassles, and a fixed interest income.

What is the minimum and maximum limit for investment needed for Soverign Gold Bond?

The minimum investment in Sovereign Gold Bonds is 1 gram of gold, while the maximum limit for individual investors is 4 kg for individuals, 4 kg for HUF, and 20 kg for trusts and similar entities per fiscal year.

Where can I invest in an SGB?

Investors can subscribe to Sovereign Gold Bonds through scheduled commercial banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognized stock exchanges like NSE and BSE.

When is the next SGB being offered - the Series III 2023-24 and Series IV?

The issuance of Sovereign Gold Bonds occurs periodically. The specific dates for Series III 2023-24 and Series IV are being offered during Dec 18-22, 2023 and again in Feb 2024. Details of the offer can be checked with the Reserve Bank of India or here.

What are the capital gains tax benefits of investing in SGB?

Sovereign Gold Bonds offer indexation benefits on long-term capital gains if held until maturity. Additionally, no capital gains tax is levied if the bonds are held until maturity.

Do I get any fixed interest? Is the interest taxable?

Yes, SGBs offer a fixed interest rate paid semi-annually at the rate announced by the RBI. The interest earned on SGBs is taxable as per the investor's income tax slab. Current interest rate announced is 2.5% per annum.

How can one apply for an SGB?

Investors can apply for SGBs through the authorized banks, or via online platforms during the subscription period announced by the RBI. Online application get a discount of Rs.50 per gram.

At what price (in Indian rupees) is the SGB issued, and what is the minimum unit size?

Sovereign Gold Bonds are issued at the prevailing market price of gold in Indian Rupees (INR) per gram as announced by RBI. The rate is calculated as the simple average of the closing price of 999 purity Gold as published by India Bullion and Jewelers Association Limited (IBJA) for the last three working days of the week preceding the subscription period.  The minimum unit size for investment is 1 gram of gold.

What is the tenure of the next series of SGB issued?

The tenure of Sovereign Gold Bonds is typically 8 years with an exit option after the fifth year. The specific tenure may vary for each series, as notified during issuance. For more details on the upcoming SGB issuance of Series III and Series IV you can visit here.

Is premature exit or redemption allowed?

Yes, investors have the option to exit after the fifth year from the date of issue, on specific dates as notified by the RBI.

Can I use the SGB as collateral to get a loan?

Yes, SGBs can be used as collateral for loans from banks, financial institutions, and Non-Banking Financial Companies (NBFCs).

Can the SGBs be traded on the stock exchange?

Yes, after the lock-in period, Sovereign Gold Bonds can be traded on recognized stock exchanges in India. RBI will come out with the guidelines around this soon.

What happens if the bond investor dies?

In the case of the bondholder's demise, the nominee or legal heir can claim the bonds and receive the benefits or redemption value accordingly.

Is it better to invest in physical gold or SGB?

The capital gains tax exemption on SGB, and a fixed rate of interest assures that the investment will be beneficial as compared to purchase of physical gold which attracts capital gains tax. Also, physical gold is difficult to store, trade or use as collaterals. The SGB is tradable, can be easily used as a collateral and provide complete transparency for taxation and valuation purposes. So, SGB could be a long term choice of safe investment.

Disclaimer : This article is meant for education purpose and is not a recommendation for any investment. Please consult you investment advisor for proper guidance. 

If you enjoyed reading around Sovereign Gold Bonds Scheme, you may also like reading about NPS and tax deduction, tax-saving with ELSS, etc.

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