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Sovereign Gold Bonds (SGB)

Sovereign Gold Bonds (SGB)


For every Indians gold is more than a precious metal. People invest in gold to meet their financial goals. Investing in gold in Diwali is very popular in India as it’s an integral part of our Indian tradition, buying gold is considered auspicious during this festive season.

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. SGB or E-Gold can be used as collateral security for any loans.

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.

Features of Sovereign Gold Bonds

  • 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
  • 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 SGB with Physical gold

Particulars Physical Gold Sovereign Gold Bond
Returns/earnings Lower than real return on gold due to making charges More than actual return on gold
Safety Risk of theft, wear/tear High
Purity Purity of Gold always remains a question High as it is in Electronic Form
Gains LTCG after 3 years LTCG post 3 years. (No capital gain tax if redeemed after maturity)
As loan collateral Accepted Accepted
Tradability or exit formalities Restrictive Can be traded and redeemed from the 5th year with government
Storage expenditures High Minimal

In short, gold sovereign bonds are new-age investment vehicles for those who are interested in the gold sector. So, if you are planning to make investment this festival, go for this.

Happy Diwali!

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