Investing in Sovereign Gold Bonds: Benefits, Risks and Eligibility
Sovereign Gold Bonds (SGBs) are issued by the Reserve Bank of India (RBI). These bonds allow you to invest in gold without owning the precious metal. This gold bond scheme has introduced a dematerialised form of investment that offers a fixed return. It is a safer and more convenient form of investment compared to physical gold, making it attractive when looking for a long-term investment in gold.
The Series II of Sovereign Gold Bond Scheme 2023-24 has opened for subscription from September 11, 2023, and will end on September 15, 2023. There is a discount of Rs 50 per gram if the bonds are purchased through the online mode.
But before you consider investing in SGB, ensure that you go through the following sections.
SGBs are an alternative form of gold investment denominated in grams of gold. These bonds are available on a per-unit basis and the value of each unit is based on the prevailing market price of one gram of purest gold. These bonds offer fixed returns (as interest) semi-annually.
Therefore, when you are investing in SGB, you are purchasing a unit of gold from the Government.
Although these bonds have a tenure of 8 years, you can redeem them after completion of 5 years from the date of purchase. You need to purchase and redeem the bond in cash at the time of issuing and after attaining maturity, respectively.
When can I buy shares of Sovereign Gold Bonds
You can buy shares of SGBs when Reserve Bank of India opens it for subscription. In FY24, sovereign gold bonds will be issued in two tranches. Sovereign Gold Bond Scheme 2023-24 Series I opened for subscription on 19th June 2023 and will be available until 23rd June 2023. Bonds will be issued on June 27. Series II will be available from September 11-15, 2023 with the bonds slated to be issued on 20 September 2023.
Features of Sovereign Gold Bonds
SGBs offer several distinct features, some of which are as follows:
- Safer Than Physical Gold
Physical gold is difficult to store and manage. As it is a commodity, it carries the risk of theft, loss or damage. However, SGBs are dematerialised forms of gold and hence you need not worry about security and storage issues. Furthermore, unlike storing physical gold in bank lockers, you don’t need to pay for storage of your gold investment.
- Assured Fixed Annual Return
The latest issue of RBI’s Sovereign Gold Bonds offers a fixed annual interest rate of 2.5%, which is payable semi-annually. Remember, that these are additional benefits over the appreciation in the price of gold. Furthermore, as the bonds have sovereign guarantee, there is almost no chance of default.
- Usable as a Security
SGBs can be treated as collateral for seeking loans and can also be traded on a recognised stock exchange. These bonds are tradable after a date as notified by RBI.
- GST-free and No Capital Gain Tax
No Goods and Services Tax (GST) is applicable on SGB investments, unlike investing in actual gold. Since, SGBs are classified as non-equity products, you will not have to pay for the Security Transaction Tax.
Furthermore, the capital gains at the end of the 8-year maturity tenure are fully tax-exempt. However, you need to pay capital gains tax if the investment is redeemed pre-maturely.
Furthermore, the capital gains at the end of the 8-year maturity tenure are fully tax-exempt. However, you need to pay capital gains tax if the investment is redeemed pre-maturely.
What Are the Pros and Cons of Investing in Sovereign Gold Bonds?
Although you might be thinking of SGB as an excellent investment option void of risks, that is not the case. Like any investment option, there are limitations of SGBs. Let’s look at some of its pros and cons-
Pros of Investing in SGB
- Safe and convenient to store
- No storage costs of gold and no capital gain taxes if held till maturity
- Fixed semi-annual return
- Tradable on stock exchanges
- No risk of purity
Cons of Investing in SGB
- Very long investment tenure.
- The minimum lock-in period constrains you from selling or redeeming the bonds before 5 years.
- SGBs are only available in tranches. You need to pay the full price of a gram of gold to invest in SGBs.
What Are the Eligibility Criteria and KYC Requirements?
Here is the list of eligibility criteria and KYC requirements to start investing in SGBs
Here is the list of eligibility criteria and KYC requirements to start investing in SGBs
- Eligibility
The eligibility criteria for investing in SGBs are as follows
- Any resident of India, including retail investors, charitable institutions, universities, trusts and Hindu Undivided Families (HUFs).
- Minors, provided they are guided by their respective guardians.
- Any resident identified under Foreign Exchange Management Act,1999.
- KYC Requirements
For KYC verification, you will need to present the same documents as you do while buying actual gold.. The KYC requirements for Sovereign Gold Bonds are minimal. You need to present a valid PAN card, and any identity proof like passport, driving licence, voter ID card, etc.
Key Takeaway
Investing in SGBs can be a suitable investment option for risk-averse or conservative investors. However, before investing, you must carefully analyse the gold market, the commodity’s demand and prevailing market price to get an idea of its performance. If you have read the above sections, you can determine if SGBs fit in your portfolio.
Download the Wealthy Appto enjoy efficient Trading and Investing!
Welcome to Wealthy
OR
Curated Investing
Completely Digitalised
Bank Grade Security
Help Centers
.png)
Download Wealthy Partner App
.png)
Apple Store
Play Store4.6 Rating•100k + Downloads
Latest Blogs
SBI Funds Management IPO: Price Band, Lot Size, Timeline and FinancialsKusumgar IPO: Issue Details, Timeline, Business and FinancialsAdvit Jewels IPO: Price Band, Lot Size, Timeline, and DetailsTurtlemint Fintech Solutions IPO: Price Band, Lot Size, Timeline, and DetailsClay Craft India IPO: Price Band, Lot Size, Timeline, and Key Details
FAQs
What are the minimum and maximum permissible investment amounts to invest in SGB?
The minimum and the maximum amount of permissible investment for individuals and HUFs are 1 gram and 4 kgs, respectively.
Can I hold a joint account for SGB?
Yes, you can hold a joint account for SGBs. However, the investment limit in kilograms will only apply to the first applicant.
How much is the issue price per gram for the 4th subscription tranche?
The issue price of gold bonds for the 4th tranche is Rs. 5,561/gm gold. An additional discount of Rs. 50 is offered for online purchase of these bonds.
Can I continue holding my SGB if I change residence?
Yes, if you had invested in SGB before changing your national residency, you will be allowed to continue holding the bond till maturity. However, you cannot make a new investment in SGB after receiving your NRI status.
