Sovereign Gold Bonds (SGB)
All you need to know about Sovereign Gold Bonds (SGB):
The smartest way to invest in gold is here. Sovereign Gold Bonds are Government of India’s securities denominated in gram of gold issued by the Reserve Bank of India. That simply means you can now invest in gold without the need to buy jewellery, gold coins or bars. Buying SGB means you are buying gold in paper or electronic (demat) form, thus getting rid of storage costs and fear of theft.
Added interest benefit: The biggest catch is that you earn interest at the rate of 2.50% p.a. on this, in addition to the appreciation of market price of gold.
What’s more: Safety is ensured because you are issued on behalf of the Government of India by the RBI. Thus, the Bonds will have a sovereign guarantee.
Know more about Sovereign Gold Bonds Scheme
- 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 the bond has been fixed at Rs 2893/-
- Investors will earn returns linked to gold price
- Interest at the rate of 2.50% (fixed rate) p.a. on the nominal value
- Bonds will carry sovereign guarantee both on redemption amount and on the interest
- Minimum investment: 1 gram
- Maximum investment: 500 grams
- Available in DEMAT & Paper form
- Tradable on Exchanges: NSE, BSE
- Tenure: 8 years with an exit option from 5th year onwards
Advantages of investing in Sovereign Gold Bonds (SGB)
- Safest: Zero risk of handling physical gold
- Earn Interest: 2.50% assured interest per annum on the initial investment
- Tax Benefits: No TDS applicable on interest Indexation benefit if bond is transferred
before maturity
Capital gain tax exempt on redemption - Assurance of Purity: RBI will announce the price before the issue date which will be fixed onthe previous week’s simple average of closing price of gold of 999 purity (24 Carat) published by IBJA Rs 50 per gram
- Sovereign Guarantee: Both on redemption amount and on the interest
- Easy Exit Option: The tenure of the bond is for 8 years with an option to redeem from 5th year onwards on the date on which interest is payable.
- Ease of Borrowing Loan: Can be used as collateral for loans
- Traded on Exchange: All earlier issuance of SGB are available for trading on NSE
COMPARISON OF PHYSICAL GOLD, GOLD ETF AND SOVEREIGN GOLD BONDS:
| Points | Physical Gold | Gold ETF | Sovereign Gold Bonds |
| Returns | Lower than actual return on gold | Lower than actual return on gold | Higher than actual return on gold |
| Safety | Risk of handling physical gold | High | High |
| Purity of Gold | Purity of gold always remains a question | High as it is in Electronic Form | High as it is in Electronic Form |
| Wealth Tax | Wealth tax applicable at 1% on the total valuation of the assets every year | Not applicable | Not applicable |
| Capital Gain | Long term capital gain tax applicable after 3 years | Long term capital gain tax applicable after 3 years | Long term capital gain tax applicable after 3 years (No Capital gain tax if held till maturity) |
| Collateral against Loan |
Yes | No | Yes |
| Tradability / Exit Route | Conditional | Tradable on Exchange | Tradable on Exchange Redemption – 5th year onwards with GoI |
| Storage Cost | High | Very low | Very low |