What are Sovereign Gold Bonds: Features, Benefits, and Eligibility to Invest
What is a Sovereign Gold Bond?
Sovereign Gold Bonds (SGB) are government securities denominated in grams of gold. They are substitutes for holding physical gold and are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. By investing in SGBs, you can own gold without the need to store it physically and earn interest on your investment.
Features of SGB Investment
Denomination and Investment Limits
Sovereign Gold Bonds are issued in denominations of one gram of gold and multiples thereof. The minimum investment is one gram, while the maximum limit per fiscal year is 4 kg for individuals and Hindu Undivided Families (HUFs) and 20 kg for trusts and similar entities.
Tenor
The bonds have a tenure of eight years with an exit option after the fifth year, which can be exercised on the interest payment dates.
Interest Rate
Investors earn a fixed interest rate on the initial investment, payable semi-annually. The rate is announced by the RBI at the time of issuance of each tranche.
Redemption Price
Upon maturity, the redemption price is based on the simple average of the closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited, for the previous three business days.
Holding Certificate
A Certificate of Holding is issued to the investor on the date of issuance.
Tax Benefits
Interest earned on the bonds is taxable as per the provisions of the Income-tax Act, 1961. However, capital gains tax arising on redemption of SGBs to an individual is exempt. Indexation benefits are provided for long-term capital gains to any person on the transfer of the bond.
Benefits of Sovereign Gold Bonds
Security and Convenience
Sovereign Gold Bonds eliminate the risks and costs associated with storing physical gold. There is no need for secure storage, insurance, or purity concerns.
Guaranteed Returns
SGBs offer a fixed interest rate in addition to the potential appreciation in the value of gold, making them a lucrative investment.
Tax Efficiency
The exemption from capital gains tax on redemption for individuals and the availability of indexation benefits for long-term capital gains make SGBs a tax-efficient investment.
Liquidity
While the bonds have an eight-year tenure, they are tradable on stock exchanges, providing liquidity to investors. Additionally, premature redemption is allowed after the fifth year.
How Sovereign Gold Bonds Work
Sovereign Gold Bonds are issued by the RBI in tranches throughout the year. Investors can purchase these bonds through designated banks, post offices, stock exchanges (NSE and BSE), and the Stock Holding Corporation of India Limited (SHCIL). The bonds are held in dematerialized form, making them easy to trade and transfer.
Upon subscription, investors receive a Certificate of Holding, and interest is credited to their bank accounts semi-annually. On maturity, the redemption amount is paid based on the prevailing gold prices, along with the final interest payment.
Who is Eligible to Invest in a Sovereign Gold Bond Scheme?
Residents of India, including individuals, minors, HUFs, trusts, universities, and charitable institutions, are eligible to invest in Sovereign Gold Bonds. Non-Resident Indians (NRIs) are not eligible to invest in these bonds.
In what denominations are Sovereign Gold Bonds issued?
Sovereign Gold Bonds are issued in denominations of one gram of gold and multiples thereof.
What is the minimum investment required for Sovereign Gold Bonds?
The minimum permissible investment is one gram of gold.
What is the maximum limit for investing in Sovereign Gold Bonds?
The maximum limit of subscription per fiscal year is 4 kg for individuals and HUFs, and 20 kg for trusts and similar entities.
What interest rate do Sovereign Gold Bonds offer?
Investors earn interest on the initial investment at a rate notified by the RBI for each tranche. The interest is payable semi-annually.
What is the tenure of Sovereign Gold Bonds?
The bonds have a tenure of eight years, with an exit option available after the fifth year, exercisable on the interest payment dates.
How is the redemption price of Sovereign Gold Bonds determined?
The redemption price is fixed in Indian Rupees, based on the simple average of the closing price of gold of 999 purity for the previous three business days from the date of repayment, as published by the India Bullion and Jewellers Association Limited.
What document will I receive upon investing in Sovereign Gold Bonds?
A Certificate of Holding is issued to the investors on the date of issuance of the bonds.
How is the interest on Sovereign Gold Bonds paid?
Interest is credited to the investor's bank account semi-annually, with the final interest paid along with the principal at maturity.
Are Sovereign Gold Bonds subject to tax?
TDS is not applicable on the bond. However, it is the responsibility of the bondholder to comply with the tax laws. Interest on the bonds is taxable as per the provisions of the Income-tax Act, 1961. The capital gains tax arising on redemption of SGBs to an individual is exempt. Indexation benefits are provided for long-term capital gains arising from the transfer of the bond.