India Markets closed

Sovereign Gold Bonds available at a cheaper price than real gold! Know features and benefits of SGB

Amitava Chakrabarty
Sovereign Gold Bond, SGB, Reserve Bank of India, RBI, physical gold, gold prices, resident Indian, individual investors, Trusts, Hindu Undivided Family, HUFs, Charitable Institutions, Universities, Interest on SGB, Loan against SGB, tax benefits, long-term capital gain, capital gain tax

Going by the government’s decision to issue Sovereign Gold Bond (SGB) every month till March 2020, the Reserve Bank of India (RBI) is now offering the Sovereign Gold Bond Scheme 2019-20-Series VII for subscription for the period from December 02 – December 06, 2019.

The central bank has kept the issue price of the Bonds at Rs 3,795 per gram of gold for offline subscribers and Rs 3,745 for online subscribers by providing a discount of Rs 50 per gram to those investors who would apply online and make the payment against the application through digital mode.

The advantage of Sovereign Gold Bond is that, unlike physical gold, the holders of SGBs don’t need pay rent to hire a locker for protecting the gold, but would earn interest on the investment.

Moreover, with physical gold at present hovering around Rs 39,500 per 10 gram or around Rs 3,950 per gram in Indian market, SGBs come at a cheaper price of Rs 3,795 per gram for offline investors and Rs 3,745 for online investors. So, the investors would straightway gain around Rs 200 per gram or Rs 2,000 per 10 gram by investing in SGB, especially through online mode.

Apart from the advantage and gain, other features of SGB are as follows:

Eligibility: A resident Indian, individually or jointly with any other individual or on behalf of minor child may invest in SGB. Apart from resident individuals, Trusts, Hindu Undivided Family (HUFs), Charitable Institutions and Universities are also eligible to invest.

Security: Bonds are issued by the Government of India through RBI and are fully secure.

Investment limit: Each Bond represents one gram of gold, so the minimum investment in SGB is one gram and the maximum limits per fiscal year are 4 kg for individuals, 4 kg for HUFs and 20 kg for trusts and similar entities.

Where to apply: Scheduled Commercial Banks (excluding RRBs, Small Finance Banks and Payment Banks), designated Post Offices (as may be notified), Stock Holding Corporation of India Ltd (SHCIL) and recognised stock exchanges viz., National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange Ltd (BSE) are authorised to receive applications for the Bonds either directly or through agents.

Payment Options: Application money for SGB may be paid in cash up to Rs 20,000, otherwise payments may be made through Demand Drafts or Cheque or Electronic banking.

Interest on SGB: The investors will get interest on SGB at the rate of 2.50 per cent (fixed rate) per annum on the nominal value, payable on half-yearly basis. The last interest shall be payable along with principal on maturity.

Tenure of Investment: SGBs are issued for a period of eight years and are repayable at a redemption price based on simple average of closing price of gold of 999 purity of the previous 3 working days, published by the India Bullion and Jewelers Association Limited. SGBs may also be redeemed pre-maturely after fifth year of the date of issue and such repayments shall be made on the next interest payment date.

Transferability: SGBs may be traded in secondary market and transferred to other investors.

Tax Treatment: Interest on SGBs are taxable, but the capital gains on redemption are tax free for individuals. Gain on premature transfer is taxable, but indexation benefits will be provided to long term capital gains.

Loan Against SGB: Investors may avail loans by using the Bonds as collateral in a manner as applicable to ordinary gold loan mandated by the RBI from time to time.