Benefits of Sovereign Gold Bond and everything you need to know about how to invest in it

Sovereign Gold Bonds also known as SGB were launched by Government of India in November 2015, under Gold Monetisation Scheme. Under this scheme, the issues were made open for subscription in tranches by RBI in consultation with GOI. Sovereign Gold Bonds as the name suggests are bonds based on gold market backed by Government of India for fixed interest rates. Basically these bonds are issued by the RBI on behalf of the Government.

Gold bonds are announced through a press release from the Government usually after every 2 or 3 months with a window of one week when investors can subscribe to these schemes. These Sovereign Gold Bonds have a maturity period of 8 years, but an investor can choose to exit or redeem or choose to encash after 5 years.

Alternatively, they can sell the bonds in the secondary market if they are listed from the date specified by the RBI. Since SGBs are denominated in grams of gold the price of each gram is linked to the value of gold with 999 purity. The gold bonds are restricted for sale to resident individuals, HUFs, Trusts, Universities and Charitable Institutions.

How to invest for the same?

• You can place an order for sovereign gold bond from Findoc Investmart Pvt ltd account. Also, the SGBs will be sold through Scheduled Commercial banks, Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, and recognised stock exchanges — National Stock Exchange of India Limited and Bombay Stock Exchange Limited.
• Once order is placed you will receive a Certificate of holding on the date of issuance of SGB on email.
• The tenure for the same being 8 years, on maturity the redemption price shall be based on simple average of closing price of gold of 999 purity of previous 3 business days as published by the India Bullion and Jewellers Association Limited (IBJA)
• Redemption proceeds and interest are credited to bank account.
• STCG (Short term capital gain) if held less than 36 months would be as per income slab
• LTCG (Long term capital gain) if held more than 36 months it would be 20% with indexation benefits.
• There is an investment limit on buying the SGB’s. The minimum permissible investment limit is one gram of gold. The maximum limit of subscription is 4 Kg for individuals, 4 Kg for HUF, and 20 Kg for trusts and similar entities per fiscal year (April-March).

Benefits of investing in Gold bonds:

1. The capital gain earned from SGB investment will be tax exempted if one holds it for 8 years i.e., its maturity.
2. The investors will be offered a fixed interest rate of 2.50 per cent per annum payable semi-annually on the nominal value along with capital appreciation. This interest payment is divided into two parts and is paid every 6 months to the investor. Irrespective of whether the cost of gold rises or falls, you are guaranteed to receive the interest.
3. The risk associated to these bonds is minimal since these bonds are backed by government.
4. SGB is affordable as well since investment amount is minimum as low as 1gram of gold.
5. Low maintenance cost since no physical locker charges need to be paid, you can save it digitally, eliminates several risks associated with holding physical gold and manually visiting to withdraw the same.
6. Extremely convenient to carry, SGB certificate is provided on email which is easy to access.
7. The issue price of the SGBs is less by Rs 50 per gram for the investors who subscribe online and pay through digital mode hence it being more lucrative to buy them over physical gold.
8. The gold bonds can also be used as collateral for loans. The loan-to-value (LTV) ratio will be as applicable to any ordinary gold loan, mandated by RBI from time to time.

Cons:

• Long-term holding period i.e., Maturity period of 8 years, with exit option after 5 years.
• These SGB’s are traded on secondary market but they have a low trading volume.
• The gold bonds are less exposed to people; hence one might find it difficult to stay updated with regards to tranche dates being launched.
• There may be a slight of risk of capital loss if the market price of gold declines.

We can conclude stating that these bonds provide one of the safest avenues for SGB investment since these are backed by RBI. From its launch date in November 2015, the scheme has been immense popular, with a total investment of approximately 28 tons of gold worth Rs 13,000 crore, which states its presence getting to people. And the Best of all is it being tax free on maturity. Happy Investing.

Originally published at: https://www.findoc.com/blog/benefits-of-sovereign-gold-bond-and-how-to-invest-in-sgb