Under the Gold Monetization Scheme, the Government of India introduced Sovereign Gold Bonds (SGB) in 2015. The Reserve Bank of India, in consultation with the Government of India, offers the loans in instalments.
The Sovereign Gold Bond Scheme (SGB) for 2022–2023 was recently launched by the government, offering investors the opportunity to invest in gold without having to physically own it and with the added benefit of an annual interest rate of 2.5%. The scheme is aimed at promoting financial savings and reducing the demand for physical gold in India.
What is a Sovereign Gold Bond?
In order to provide investors with a physical gold alternative, the Indian government unveiled the Sovereign Gold Bond (SGB) Scheme in November 2015. The market has seen a significant decline in the demand for physical gold over time. SGB keeps track of the asset’s export-import value while also ensuring transparency.
Government securities, known as SGBs, are regarded as secure. Their worth is expressed in terms of multiples of gold grammes. SGBs have seen a sharp rise in investors because they are seen as a viable alternative to physical gold.
Investors are attracted to SGBs due to their flexibility and liquidity, as they can be traded on the stock exchange. Additionally, SGBs offer tax benefits to investors compared to physical gold.
Who can invest in the Sovereign Gold Bonds scheme?
Investments in the Sovereign Gold Bond Scheme 2022–23 are open to all Indians. A minimum of one gramme of gold should be purchased by investors to participate in the SGB scheme.
The maximum limit for subscription is 4 kg for individuals and 4 kg for Hindu Undivided Families (HUF). This fiscal year, the upper limit is 20 kg for trusts and similar entities. This restriction may occasionally be changed by the government.
Why should you invest in Gold Bonds?
The benefits of buying gold bonds are many. Only Indian citizens, including individuals, Hindu undivided families, trusts, universities, and charitable organizations, are permitted to purchase gold bonds.
Advantages of Sovereign Gold Bonds
Absolute Safety
Except for market risks, there are no risks associated with sovereign gold bonds that exist for physical gold. There are no significant design or waste fees in this case. SGBs also generate interest, as opposed to physical gold, which is a futile investment.
Extra Income
The most recent fixed rate is 2.50% (on the issue price), and it offers guaranteed yearly interest.
Indexation Benefit
Bond transfers by investors that result in long-term capital gains are eligible for indexation benefits. Additionally, both the principal and the interest earned are covered by a sovereign guarantee.
Tradability
Within a certain date range, you can trade gold sovereign bonds on stock exchanges (at the discretion of the issuer). You could, for instance, trade them on the Bombay Stock Exchange or the National Stock Exchange after five years of investment.
Collateral
Some banks will accept SGB as security or collateral for loans that are pledged in DEMAT form. Therefore, after setting the loan-to-value (LTV) ratio to the value of gold, they will treat it as a gold loan. This is decided by the India Bullion and Jewellers Association Limited.
How can you buy Sovereign Gold Bonds?
You can fill out the application form for gold bonds, which is provided by the issuing banks or available from specific post offices. The application form is also available for download on the Reserve Bank of India website. You can apply for bonds online with many banks, including the State Bank of India and Kotak Mahindra Bank.
Each applicant is required to supply their PAN number, which was issued by the Income Tax Department. One cannot apply to invest in gold bonds without a PAN.
The offices or branches of scheduled private banks, scheduled foreign banks, designated post offices, and the Stock Holding Corporation of India are where the gold bonds are sold.
To receive gold bonds, a specific eligibility requirement must be satisfied. Even if you apply, there is no guarantee that you will receive the bond. On the websites of the listed commercial banks, you can submit an online application for gold bonds. For investors who apply online, the issue price of the gold bonds will be Rs. 50 per gramme less than the nominal value.
Eligibility for the Sovereign Gold Bond Scheme
Individuals who are keen to participate in the Sovereign Gold Bond Scheme need to satisfy the following simple eligibility criteria:
Indian resident: The Foreign Exchange Management Act of 1999 established the eligibility requirements, making this programme only available to Indian residents.
Individuals and organisations: As long as they are Indian residents, individuals, associations, trusts, HUFs, etc. are all eligible to invest in this scheme. One may invest in bonds jointly with other eligible members under the scheme.
Minors: This bond can be purchased by guardians or parents on behalf of minors.
Features and Benefits of the Sovereign Gold Bond Scheme
Sovereign Gold Bonds have been chosen as an investment avenue due to their many features. Some of these features are given below:
Gold denomination: These bonds will be available in multiple weight denominations, starting at 1 gramme, giving individuals the flexibility to buy gold that best suits their needs. Format Depending on what is more convenient for a particular person, one can choose to hold these bonds in paper form or in demat form.
Flexibility: The amount that one chooses to invest is flexible under this scheme, allowing for flexible investments.
Interest: Every year, interest may be earned on investments made in this plan.
Interest Rate: The Reserve Bank of India is offering a 2.50% annual interest rate on the nominal value of the gold bonds, which are paid twice a year. The returns will be directly correlated with the gold market price.
Safety: Sovereign Gold Bonds are known to be safe since they are government securities and do not carry the risks that having physical gold carries, such as the possibility of theft.
Purity: Since it is backed by the government, one is assured of the purity of gold when they invest in the scheme.
Maturity: The 8-year maturity period for this scheme Gift/Transfer Investors who satisfy the necessary eligibility requirements may decide to gift or transfer these bonds to others. Premature departure after five years from the date of issuance, these bonds may be redeemed prematurely.
Loan collateral: These bonds can be used as collateral for loans by investors. Application Banks and post offices are allowed to offer this service, and the application process is straightforward and quick.
Payment: Paying methods these bonds can be bought using a variety of payment methods, including checks, cash, DDs, and electronic transfers.
Nomination: this programme has a nomination clause that complies with the law. These bonds may be traded on stock exchanges by investors who are tradable, subject to Reserve Bank of India notifications.
Value: The value of these gold bonds is calculated in multiples of grammes, and the minimum amount that can be purchased is 1 gramme. An investor, who may be an individual or a Hindu undivided family, may purchase a maximum of 4 kg of gold. 20 kg of gold can be purchased for trusts and educational institutions.
Eligibility Criteria: In contrast to other investment options, sovereign gold bonds are open to all Indian residents. Individuals, HUFs, trusts, charities, academic institutions, etc. Interest Rate: The Reserve Bank of India is offering a 2.50% annual interest rate on the nominal value of the gold bonds, which are paid twice a year. The returns will be directly correlated with the gold market price.
Tenure: Bonds issued in gold mature after 8 years. After the fifth year, investors have the option to only redeem their bonds on the interest payment date.
Documentation: You will need copies of various documents, such as the driver’s licence, passport, voter identification card, or PAN card, that are required for the KYC process in order to buy gold bonds.
Issuance of the Bonds: According to the GS Act of 2006, only the Government of India Stock Exchange may issue gold bonds on behalf of the Reserve Bank of India. An individual who purchases gold bonds will receive a holding certificate, which can also be changed into a depository receipt.
Tax: According to the 1961 IT Act, interest received from gold bonds is taxable. The investor’s capital gains are not subject to tax when they are redeemed for gold bonds. In addition, an investor receives benefits from indexation for any long-term capital gains made.
Redemption Price: The redemption price, which will be expressed in rupees, is determined by taking the three days’ average closing prices for metal with a purity of 999.
Sovereign Gold Bond Scheme Interest Rate
All investors in this scheme are eligible to earn interest on their investments because the government has set an interest rate. The interest rate is currently 2.50% per year, and it is paid every six months, with the final payment due along with the principal at maturity. The government may alter this interest rate in accordance with its policies.
Frequently Asked Questions (FAQs)
What is a Sovereign Gold Bond (SGB)? Who is the issuer?
Government securities, called SGBs, are valued in grammes of gold. They serve as alternatives to holding actual gold. The issue price for investors must be paid in cash, and the bonds must be redeemed in cash when they reach maturity. The Reserve Bank issued the bond on behalf of the Indian government.
Are there any risks in investing in SGBs?
If the market price of gold falls, there may be a chance of capital loss. The investor does not, however, lose any of the gold units he purchased.
Whether joint holding will be allowed
When investing in SGB, the joint holders in the linked demat account, if any, would also be joint holders. The only option available to holders of investment accounts without a demat account is a single A holder.
What is the minimum and maximum limit for investment?
The bonds are offered in multiples of one gramme of gold in that denomination. The minimum investment in the bond is one gramme, and the annual buying cap is 500 grammes for each person (April–March). The cap is applicable to the first applicant in joint holding situations.