Personal Finance

🏆 New tranche: Sovereign Gold Bonds Series VII

In this article:


Issue Snapshot:

  • 📅 Issue Period: 25-28 October 2021
  • 🏷️ Price: ₹4,765 per gram {₹4,715 if you apply online}
  • 💰 Annual interest: 2.5% per year (paid semi-annually)

The latest tranche of sovereign gold bond is now open. But before we get into the issue details, let’s first understand what are Sovereign Gold Bonds (SGBs).

SGBs, are government-run bonds denominated in multiples of one gram of gold, issued by the Reserve Bank of India. These bonds are part of the central government’s market-borrowing program wherein each bond represents the value equivalent to one gram of gold with 999 purity. SGB allows you to invest in gold without the need to buy jewelry, gold coins, or bars. SGBs are easy to buy and handle with a term of eight years.

Confused? Well, let’s keep the conversation more human.

Basically, if you want to buy one gram of gold, instead of buying a coin or bar you buy 1 bond equivalent to one gram of gold. Your money goes to the government who in turn hands you out a piece of paper  —  A promissory note to pay you exactly what your one gram of gold will be worth 8 years from now. In addition, you also earn a 2.5% interest every year (paid semi-annually). Cool isn’t it?

What makes SGBs really attractive is that on top of benefiting from gold appreciation, you also earn a cool 2.5% interest every year on your investment. Also through SGB since you are buying gold in paper or electronic (demat) form you also get rid of storage costs and fear of theft.

To invest in SGB, all you need is a PAN card as the mandatory document without which no investment in these bonds is permitted.


Know more about Sovereign Gold Bonds Scheme Series VII

  • SGBs are government securities denominated in grams of gold (1 unit = 1 gram)
  • Issued by the Reserve Bank of India on behalf of the Government of India
  • Issue price of Sovereign Gold Bonds (SGB) 2020 – 2021 – SERIES VII has been fixed at ₹ 4,765 per gram
  • discount of ₹50 per gram if you apply through online mode. Thus the issue price for purchasing online would be ₹4,715.
  • Investors will earn returns linked to gold price
  • Interest rate is fixed at the rate of 2.50% p.a. on the nominal value paid every six months.
  • Safety: Bonds will carry sovereign guarantee both on redemption amount and on the interest
  • Tax free capital gains at maturity
  • Minimum investment: 1 gram
  • Maximum investment: 4,000 (grams) for Individual, HUF& 20,000 (grams) for Trust and similar entities notified by Govt.
  • Holding: Available in Demat & paper form
  • Tradability: The bonds will be tradeable on stock exchanges (NSE and BSE) within a fortnight of the issue date, subject to liquidity.
  • Tenure: 8 years with an exit option from 5th year onwards
  • Sovereign gold bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to the ordinary gold loan mandated by the Reserve Bank of India (RBI) from time to time. The lien on the bond shall be marked in the depository by the authorised banks.

Who is SGB for? SGB is a good option for investors who wish to buy gold only for the purpose of investment, want to benefit from 999 purity gold price movement at zero risk. Since you don’t get any physical delivery of gold with SGB, and if you wish to buy gold at a later stage, you can sell your gold bonds and buy your gold jewelry using the money from the gold bonds sale proceeds.


What makes SGB better than digital gold or gold coins?

Unlike digital gold, gold coins or gold bar, there is no goods and services tax (GST) levied on sovereign gold bonds. Also, there are no making charges on SGBs.

What makes gold bonds better than any form of investing in gold is that over and above the appreciation from gold, you earn a passive income of 2.5% every year from your gold bonds, which is paid by the government twice a year. No other form of gold investment offers this benefit.

Another reason why SGB is a better choice for gold investment is that the capital gain on the maturity amount of these bonds is completely tax-exempt making them attractive for long-term investors. Although, you must know that any sale before maturity would attract capital gain taxes based on the period of holding. Also, the 2.5% interest you will earn from SGB will be taxable according to your applicable tax slab.

However, it has a minor gripe. Sovereign gold bonds is an investment product for long-term investors. Once you buy SGBs, you are married to them for at least 5 years, although the maturity is 8 years. This means your cash will be tied-up for an extended duration. Unfortunately, this may not go down with some people for various reasons. What if gold decided to get moody and has its down moments? Some of you may want to get out and use that cash for something else? Although these bonds are also tradable on stock market exchanges, there could be a liquidity issue in that situation (which means you will not find the buyer or the right price). Meaning you could be stuck.

However, if you are one of those investors who probably would never sell your gold, or are investing it for your long-term goals – higher education, retirement, or a wedding (or your golden getaway with your girls perhaps?) then you’re good. There is seriously no better way to invest in gold than SGBs.

Potential Upside: Nobody can steal it from you and you make an extra 2.5% on your gold investment

Potential Downside: You can’t sell it your jeweler or pawnbroker

Ready to invest? Call us on 0731-4217003 or leave a message here.

Arihant Team
The Arihant Team believes everyone deserves access to sophisticated financial advice. From day one, our mission has been to help make investing easier and accessible to every Indian. Our team of experts are curating informative and research-based article on this blog, to help make investing and managing your money easier for you!

If you would like us to discuss a specific topic on our blog, please write to us at research@arihantcapital.com.
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