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Want to know about Sovereign Gold Bonds (SGBs) in detail? In this guide on SGBs, you will learn about this type of gold investment and other relevant details.
Ever wondered how you can invest in gold hassle-free, without worrying about storage or security? Sovereign Gold Bonds (SGBs) is your gateway to a secure and convenient investment option.
In this guide on SGBs, you will learn everything you need to know—from their benefits to the step-by-step process of buying them online. Scroll below to uncover how they can enhance your investment strategy with ease and confidence.
What Are Sovereign Gold Bonds?
Sovereign Gold Bonds issued by the Reserve Bank of India (RBI) are a safe and convenient way to invest in gold without worrying about storing physical gold.
These bonds, backed by the Government of India, offer security and are a reliable alternative to owning gold in its physical form. They provide an attractive annual interest rate of 2.50%, which is paid twice a year. This enhances its appeal compared to holding physical gold.
SGBs have an initial lock-in period of 8 years, but investors can opt to exit after 5 years. Gains from SGBs are exempt from taxes, yet the accrued interest is taxable according to the investor's applicable tax rate.
When you buy these bonds, they represent specific grams of gold and are known for their transparency in tracking export-import values. Available through banks and stock exchanges, investing in SGBs provides you with a holding certificate as proof of your investment, ensuring both security and peace of mind.
What Are the Key Features of Sovereign Gold Bonds?
Here are some crucial features of Sovereign Gold Bond:
Eligibility to Invest
If you are an Indian resident, you can invest in Sovereign Gold Bonds. This includes individuals, Trusts, HUFs, charitable institutions and universities. You can even invest on behalf of a minor.
Issuance of Bonds
The Reserve Bank of India (RBI) issues SGBs on behalf of the Central Government, and you can trade them on the Stock Exchange. SGBs are available in multiples of one gram of gold.
When you invest, you receive a Holding Certificate, and you can also convert this into a demat form.
KYC Documentation
Just like buying physical gold, you need to complete Know-Your-Customer (KYC) norms.
Submit copies of your identity proof (like a PAN Card or Aadhaar card) and address proof (such as a passport, driving licence or voter ID card) for verification.
Tax Benefits
Interest earned on SGBs is taxable under the Income Tax Act, of 1961. However, if you redeem SGBs, you will not have to pay capital gains tax.
Additionally, long-term capital gains from SGBs qualify for indexation benefits, even when you transfer the bonds to someone else.
SLR Eligibility
Banks can count SGBs towards their Statutory Liquidity Ratio (SLR) if they acquire them through lien, hypothecation or pledging.
SLR is the minimum reserve requirement that commercial banks must maintain in gold, cash and approved securities before extending credit.
Redemption Value
When you redeem your SGBs, the price will be in rupees, based on the average closing price of 999 purity gold over the previous three working days.
Purchasing Channels
SGBs can be bought through banks, the Stock Holding Corporation of India Limited (SHCIL), and selected post offices.
They can also be traded on recognised stock exchanges such as the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE), either directly or through intermediaries.
Commission
When you buy SGBs, the receiving offices charge a 1% commission on the total subscription amount.
They share at least half of this commission with intermediaries, such as agents or brokers.
Is Sovereign Gold Bond the best investment for you?
While SGB is a sought-after long-term investment with benefits like low-risk assurance as the government tries to keep the value of gold stable, non-taxable long-term capital gain and inflation protection, there are some factors you should consider before investing in sovereign gold bonds.
1. Long lock-in period
The government has kept the lock-in period of 8 years on SGB as its value is tied to the international market price of gold. You can redeem the bond after 5 years of investing but it is still a long term investment.
It is not viable for people who are looking for short-term investment or those who want flexible withdrawal conditions.
If you want to invest in gold but need a short-term solution with easy withdrawal, you can consider digital gold investments starting from ₹10.
On daily gold saving apps like Jar and Paytm, you can set a daily investment plan and withdraw anytime without any fees or charges.
2. Minimum Investment of 1 gram
To invest in sovereign gold bonds, you need to buy at least 1 gram of gold which may be an entry barrier for people who are looking to invest smaller amounts and plan to grow into their investment at their own pace.
For people who want to start small and increase their investment at their own pace, daily saving apps like Paytm & Jar provide daily investment in gold starting from ₹10 with the ability to change the daily investment amount and instant withdrawals.
The Bottom Line
After going through this guide on SGBs, it is clear that this investment scheme offers a straightforward, low-risk option for long-term financial growth.
It allows you to hold gold without the hassles of physical storage, with the added benefit of earning periodic interest from the RBI.
So, whether you are looking to hedge against inflation or diversify your portfolio, SGBs stand out as a prudent choice for savvy investors in India.
Frequently Asked Questions
1. Can I sell gold bonds at any time?
Yes, you can sell gold bonds in the primary or secondary market anytime after purchase. You must keep in mind that selling Sovereign Gold Bonds will result in taxes, which depend on the holding period.
2.How can I download my Sovereign Gold Bond Certificate?
On the issuance date of the Sovereign Gold Bonds, you will receive a holding certificate. If you opt for the physical form, the certificate will be sent to your registered email ID.
Alternatively, if you choose the demat form, it will appear in your demat account on the issuance date. Additionally, you can collect the holding certificate from your bank branch.
3. Is the interest earned on Sovereign Gold Bonds taxable?
Yes, the interest earned on Sovereign Gold Bonds is taxable. It is considered regular income and is taxed according to your applicable tax slab, classified as income from other sources.
4. What are the minimum and maximum investment limits for SGBs?
The minimum investment in SGBs starts at one gram. Depending on the investor type:
- Individuals and Hindu Undivided Families (HUFs) can invest up to 4 kg of gold bonds.
- Charitable institutions and trusts have a higher limit, allowing them to purchase up to 20 kg of SGBs.
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