In a view to reduce the physical holding of gold, Indian Government had launched a Sovereign Gold Bond (SGB) scheme in 2015, which is a substitute for the physical gold. This scheme would help in pooling domestic savings into financial savings. Till April 2020, 40 tranches of Sovereign Gold Bond schemes have been issued.
Sovereign Gold Bonds are issued by the country’s central bank on behalf of the government. This bond carries a sovereign guarantee, both on redemption amount and on the interest. These bonds are traded on the exchange and the investors can earn capital appreciation, linked to gold prices. In addition to this, investors will be eligible for 2.5 per cent per annum interest on the nominal value, which will be credited semi-annually to the investor's account and the last interest will be payable on maturity along with the principal.
Notably, the capital gain arising from SGB redemption is tax-free, which is another benefit to the investors. Also, no TDS is applicable on the interest.
In April 2020, Reserve Bank of India had declared that it will issue SGB in six tranches. Meanwhile, its series IV had opened on July 6, which is set to end today. The remaining two series will open for subscription from August 3 to 7, 2020 as well as from August 31 to September 4, 2020.
During panic or crisis-like situations, investors prefer safe investment such as gold, thus, it is considered as a flight to safety. Due to the ongoing pandemic, the investors have been buying gold, which resulted in nearly 42 per cent gain in the domestic gold prices in the last one year.